I had highlighted several postings on the China Property Market before.
- Aug 11 2009: China Property Bubble
- Oct 16 2009: Another View On China's Real Estate
- Nov 19 2009: China's Empty City! (must watch clip :P )
- Jan 1 2010: China Property Bubble Or No?
On today's South China Morning Post, 64.5 million mainland houses lying vacant: economist
Holy cow! 64.5 million mainland houses lying vacant????
- 64.5 million mainland houses lying vacant: economist
Mainland’s property market remains dangerously overheated and failing to tame the speculative bubble could threaten financial and social stability, a prominent economist said in an official newspaper on Friday.
Yi Xianrong, an economist at the Chinese Academy of Social Sciences, a government think tank in Beijing, noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country, many of them bought up by people wagering on a constantly rising property market.
In the overseas edition of the People’s Daily, Yi said the ”shocking” level of empty housing showed the dangers brought by the country’s property boom, which the central government has been trying to cool.
“If this outsized property bubble does not burst, it will hurt residents’ well-being, and also affect national financial security and co-ordinated national economic development,” wrote Yi.
He wrote that the overheated property market was creating ”misallocation of resources, price distortions, squandering of wealth … and is magnifying national financial risks, so that the economic structure cannot be adjusted, ultimately leading to overall social instability.”
The People’s Daily’s overseas edition is a small-circulation offshoot that tends to be more forthright than the main, domestic edition. While the paper is not an unerring mirror of official policy, Yi’s commentary suggests that the real estate market remains a worry for policy-makers.
Beijing announced a slew of measures in past months to cool the property market, including raising down-payments and mortgage rates, and that has already caused deal volumes to drop and property inflation to slow in many cities.
Nationwide, property prices rose 0.2 per cent in May from a month earlier, and were 12.4 per cent higher than a year earlier. The increases were smaller than in April.
Property prices will fall within a few months as government steps to cool the real estate market bite deeper, Xu Shaoshi, the minister of land and resources, said on Sunday.
Yi suggested that more robust steps are needed to beat back property price rises fuelled by speculation.
“The problem now is that investment in the domestic property market has completely overturned China’s traditional concepts of wealth management and investment and its price formation system,” he wrote.
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Ah.. ZH has also featured this article! (ps: In the posting there is a report on Fitch on China Banks. Do have a look. :D )
China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered
China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this "data." Although in retrospect, based on China's bottom up GDP goalseeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just announced stunners about the Chinese economy. The first comes from Fitch, which in a report released today titled Informal Securitisation Increasingly Distorting Credit Data, uncovers that China has in fact been massively underrepresenting the actual amount of new loans in the first half of 2010, courtesy of precisely the kinds of securitization deals that blew up half of our own banking system: "Adjusted for informal securitisation activity, Fitch estimates that the net amount of new CNY loans extended in H110 was closer to CNY5.9trn, or 28% above the official figure of CNY4.6trn...on a flow basis the volume of credit being shifted off balance sheets in recent times has been large and rising. Activity also is largely concentrated among just a few dozen banks, and institution?specific exposure is often much higher." And some are wondering why China's AgBank was scrambling to raise $20 billion via a hurried IPO... Yet this data pales in comparison with disclosure from a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country! This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently. Forget Stephen Roach - China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States. We leave it up to you to imagine the consequences of that particular bubble's bursting...
Regarding Ordos, the empty city. That clip was made in Nov 2009. Since then, apparently Ordos now have some 28,000 people.
:D
>>>
Designed for 300,000 people, Kangbashi, the new urban centre of Ordos prefecture west of Beijing, may have only 28,000 residents, Bank of America-Merrill Lynch said in a May 10 note.
Standard Chartered Bank called it "the Dubai of northern China" for its vacant skyscrapers and more than 1.1 trillion yuan ($237 billion) worth of new public buildings and local wealth.
Unlike in Dubai, where home prices have fallen more than 50 per cent since mid-2008, buyers are still piling into Chinese housing. Yu says he sees no reason why the threefold gain on his investment shouldn't grow.
>>>>
!!
Source: China's property demand hides a dark reality
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Hi Moolah,
Thanks for posting this article. I know China is overbuild, but, I do not know the extend till now. 64.5 million vacant house is serious. China urbanization rate is around 50%, so, there are around 600million urban population. Assuming a conservative 3 person lives in a house, we have a "filled" housing stock of 200million homes, add on to the vacant 64.5 million homes, we have a total of 264.5million homes in urban China. 64.5/264.5=24%. This is a crazily overbuilt situation. That's means 1 in 4 houses in China are empty. Imagine you drive by KL and 1 in 4 houses you drive past have a "for sale" sign. This is crazy. I am just shocked at the extend of overbuilding.
Even if we assume a crazy 10% compounded urbanization growth rate, the current excess housing inventory is 7 years worth of demand and they are building more inventory. This market is going to crash. It is unsustainable. The problem is when and will it affect their banking system?
Thanks for posting this again. It gives me a sense the extend of overbuilding.
snowball: Posted Aug 2009. China Property Bubble, there was a section you might want to read.. :D
do see the following posting from Prof. Pettis: Notes on a real estate trip in China....
seen insane excess in the past – 200 thousand square meter malls completely empty next to apartment complexes with 40 thousand units and 30% occupancy rates, etc. etc. But what we saw over there is rather hard to fathom. It seems the Guiyang city mayor had the same idea as the Shenzhen mayor – to move the old downtown to a piece of undeveloped land.
Of course Guiyang has a quarter the population and probably a quarter the per capita income of Shenzhen. They built sprawling new government buildings about a 20-minute drive north of town. And then the residential high rise projects started going up. From driving around the area, we figured well over 100 20+ storey buildings.
What was most distressing was that the development has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town. Every building we got close enough to see was either incomplete/under construction, or empty. Our tone gradually went from “Haha, another one!” to “Oh my God, another one.” We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon. The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction.
Back in the city proper, every neighborhood we saw was a convulsing mess of buildings being torn down, new ones being built, and unfinished high rises starting to crumble. We have a few questions we’d love to hear/read you chew on (all the hard questions of course):
1. What will determine whether China experiences a steady slowdown (possibly sub-par growth rates over next decade) vs. a crash of the economy. Is controlling credit and SOEs enough to prevent a collapse of the typically most volatile component of the GDP – fixed asset investment? If they can prevent a crash, then maybe it’s all worth it? (the premise for shorting rests on the place crashing)
2. How high can the debt go and for how long can they keep on rolling over dud loans, dud payables, defunct real estate projects, before it becomes truly unsustainable? Do we have any precedents to go by, what would be the clues to look for that it’s cracking? And which are the pieces of the chain that are most fragile and most difficult to control by the government? (inventory, evidence of flight capital)
3. Could the Chinese create a mess of monetary and fiscal policy and create a big inflationary push or are they paranoid enough inflation to resist it? Given the poor Chinese reporting how should we track these trends?
4. What’s the chance that the Chinese want to create a full blown economic bubble that they wish to ride on for like 5-10 years in hope of then miraculously diffusing it because the early excess would be taken care of by demand created by later bubble growth? All in their light “justified” by China still having a low base for most things.
snowball: Posted Aug 2009. China Property Bubble, there was a section you might want to read.. :D
do see the following posting from Prof. Pettis: Notes on a real estate trip in China....
seen insane excess in the past – 200 thousand square meter malls completely empty next to apartment complexes with 40 thousand units and 30% occupancy rates, etc. etc. But what we saw over there is rather hard to fathom. It seems the Guiyang city mayor had the same idea as the Shenzhen mayor – to move the old downtown to a piece of undeveloped land.
Of course Guiyang has a quarter the population and probably a quarter the per capita income of Shenzhen. They built sprawling new government buildings about a 20-minute drive north of town. And then the residential high rise projects started going up. From driving around the area, we figured well over 100 20+ storey buildings.
What was most distressing was that the development has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town. Every building we got close enough to see was either incomplete/under construction, or empty. Our tone gradually went from “Haha, another one!” to “Oh my God, another one.” We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon. The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction.
Back in the city proper, every neighborhood we saw was a convulsing mess of buildings being torn down, new ones being built, and unfinished high rises starting to crumble. We have a few questions we’d love to hear/read you chew on (all the hard questions of course):
1. What will determine whether China experiences a steady slowdown (possibly sub-par growth rates over next decade) vs. a crash of the economy. Is controlling credit and SOEs enough to prevent a collapse of the typically most volatile component of the GDP – fixed asset investment? If they can prevent a crash, then maybe it’s all worth it? (the premise for shorting rests on the place crashing)
2. How high can the debt go and for how long can they keep on rolling over dud loans, dud payables, defunct real estate projects, before it becomes truly unsustainable? Do we have any precedents to go by, what would be the clues to look for that it’s cracking? And which are the pieces of the chain that are most fragile and most difficult to control by the government? (inventory, evidence of flight capital)
3. Could the Chinese create a mess of monetary and fiscal policy and create a big inflationary push or are they paranoid enough inflation to resist it? Given the poor Chinese reporting how should we track these trends?
4. What’s the chance that the Chinese want to create a full blown economic bubble that they wish to ride on for like 5-10 years in hope of then miraculously diffusing it because the early excess would be taken care of by demand created by later bubble growth? All in their light “justified” by China still having a low base for most things.
Hi Moolah,
Thanks for that additional reading. This is an excessively overbuilt country. I reworked my numbers as my calculation just now is a back of the envelope one and found the excess inventory is actually 29 years worth of demand. That is when i assume china urbanization growth rate at 10%. As a matter of perspectives, China urbanization growth rate is 4.6%. I double thier urbanization growth rate, and it is still 29 years of inventory. This is crazy.
snowball: you are welcome!
If you do have the time, do read also Andy Xie's warning last Aug.
Yet Another Warning On China From Andy Xie
:D
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