By Liangping Gao and Marius Zaharia

BEIJING/HONG KONG (Reuters) – Beijing resident Hu Yongwei bought more than a dozen apartments in the small central Chinese city of Hebi for about $31,000 in all, betting they will be financially more rewarding than other investments.

Hu, who mostly acquired two- or three-bedroom apartments built about three decades ago, spent 18,000 yuan ($2,528) this month in purchasing his 15th property in Hebi, where prices have plunged over the last two years.

“The flats were sold very cheaply, like cabbage,” the 39-year-old said, adding his family’s bad experience with the stock market has made him steer clear of shares.

Real estate agents said low-cost apartments in smaller Chinese cities such as Huainan and Rushan in the east, and Gejiu in the southwest, are also being bought, largely by people living outside those locations.

The deals demonstrate that buyers are starting to turn their attention towards smaller cities in China where property prices are some of the cheapest in the country after years-long declines amid a wider sector downturn and a sluggish overall economy.

While the small-city purchases are not significant enough to impact China’s giant real estate market, and data on transaction volumes is not available, they nevertheless indicate that a tiny corner of the crisis-hit sector is exhibiting signs of life.

The deals come at a time the picture for China’s property market is getting darker. New home prices rose at a slower pace in May and property investment fell at its fastest in more than two decades, data showed.

For buyers with the means to get back into the market, the rock-bottom prices of second-hand apartments in the smaller cities have been hard to resist.

Hu paid a surprisingly low 1,000 yuan excluding taxes and fees for one of his apartments in Hebi. According to data from Anjuke, one of China’s largest real estate platforms, prices are 27% off their 2021 peak in some areas in the city.

Similarly, prices are as much as 24% below their top in parts of Huainan, Rushan and Gejiu.

By comparison, prices in top-tier Beijing, where an average second-hand home can cost tens of thousands of yuan, fell just 1.5% over a six-year period to May this year, while in tier-2 city Chongqing, they fell a little more than 10% over five years, according to Reuters calculations based on Anjuke’s data.

‘BUYERS ARE NOT LOCALS’

Real estate agents said buyers in the small cities are mostly from out of town. They range from speculators who have no intention of living in the apartments, to youth seeking a cheap place to “lie flat”, a Chinese term for doing just enough to get by, to people looking for affordable retirement.

In Huainan, “most of the buyers are not locals”, said Zhao, an agent who only gave his surname because he was not authorised to speak to media. “Due to high living costs in big cities, young people come here to buy cheap houses and lie flat.”

In Rushan, agent Liu Yong said most buyers are from elsewhere in China, aged 40-to-50 and looking to set up their retirement by the sea. An agent in Gejiu said buyers aim to move there because the cost of living is lower.

Analysts, though, are reluctant to draw bullish conclusions from the home purchases in these small cities given broader indications the world’s second-biggest economy is struggling to pick up from COVID-19 lockdowns.

Consumer sentiment remains below the range set over the past two decades. Domestic demand is weak as consumers and companies prefer paying down debt to investing. And youth unemployment is at a record high of above 20%.

“The fact that there are so many people buying low-cost flats in smaller cities reflects caution,” said Hwabao Trust economist Nie Wen. “People are not confident about their future income.”

($1 = 7.1643 Chinese yuan renminbi)

(Editing by Muralikumar Anantharaman)

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