June 26 (Bloomberg) -- Property prices in Shanghai, Beijing and Guangzhou are too high and developers should focus on the smaller Chinese cities as consumers there grow richer, real estate executives said.

``First-tier cities are getting too expensive,'' Justin Chiu, executive director at Cheung Kong (Holdings) Ltd., Hong Kong's biggest developer, said in an interview in Singapore today. ``Anywhere in the world people who support the property market are from the middle class, but in these first-tier cities, prices are getting too high for middle class people to absorb.''

Hong Kong developers are expanding in China to tap the world's fastest-growing major economy. Builders such as Cheung Kong and competitors including Henderson Land Development Co. are relying on returns from investments in China.

China's average housing price in 70 major cities grew 6.4 percent from a year earlier in May, the fastest in 18 months, according to the National Development and Reform Commission.

Premier Wen Jiabao is trying to curb spending on factories and real estate to prevent excess capacity and oversupply from harming the economy. Fixed-asset investment in urban areas surged 25.9 percent in the first five months.

``There's a growing middle class in China,'' Bill Mok, Chief Financial Officer at Far East Consortium International Ltd., said at a real-estate conference today in Singapore. ``These days people are still looking to do it in Beijing or Shanghai but never overlook second-tier cities.''

Second Tier

Chongqing, Dalian and other capital cities of the provinces can be considered second tier, and developers are now focusing more on these, Chiu and Mok said.

``Land prices in these cities is still very low compared with Shanghai or Beijing,'' Mok said. Far East focuses on property development in greater China.

``We need the mass market,'' Chiu said. ``There's a huge middle class segment in china that would be able to bring in a stable stream of buyers for us.''

``That's why we'd rather go for second-tier cities where you can see prices around 6,000 to 12,000 yuan per square foot,'' Chiu said. By contrast, buyers can't get anything ``decent'' in Shanghai for under 10,000 yuan ($1,300) a square foot, he said.

Cheung Kong's strategy in china is to sell apartments or projects at a price as high as possible, he said.

``We want to make them believe that the prices are going to go even higher in the future and you can only do that if you set a high price,'' he said.

To contact the reporter for this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

Last Updated: June 26, 2007 00:32 EDT