Hieronder heb ik een informatieve artikel gepaste van Forbes Magazine over Chinese “ghost cities” — steden volgebouwd met huizen, waarvan verwacht wordt dat die bewoond zullen worden, maar dat niet altijd gebeurd en daardoor leeg blijven. Vaak wordt er in het westen geschreven over de onhoudbaarheid van de Chinese vastgoedsector, maar wat dan meestal niet begrepen wordt is dat de Chinese economie niet te vergelijken is met elk ander land uit het Westen. China heeft haar markten in de laatste decennia weliswaar in meer of mindere mate geopend, maar het is de Communistische Partij die nog alles in handen heeft. Het stuurt de economie naar wens aan en kijkt verder dan de volgende kwartaal. Veel leesplezier!
What China Is Doing About Its 450 Million Square Meters Of Unsold Housing
I’d like to introduce some of China’s new ghost cities: Nanguan, Kerqin, Yuhong, Saihan, Yijinhuoluoqi, Dongling. They were uncovered by a Peking University study that used Baidu big data to find cities with large housing developments that the search engine’s users just weren’t going to very often. The rationale was that if nobody is going to these places then there is a good chance that they could be vacant — new “ghost towns” systematically built at the height of China’s urbanization boom.
Although when I looked at the list of places something stood out. Besides having under-populated new areas these cities also have something else in common: nobody’s ever heard of them before. Most are relatively small, relatively unimportant cities floating beyond the peripheries of China’s main economic powerhouses.
When we talk of China’s ghost cities we are no longer really talking about places like Shanghai’s Lujiazui, Guangzhou’s Zhujiang, and Zhengzhou’s Zhengdong New Area, who were once the recipients of international mockery for being under-populated. For the most part, these places have filled up and have become the economically vital engines they were envisioned to become — even Ordos Kangbashi now has 100,000 people. The places we’re focusing on now as having gluts of unsold homes are mostly diminutive new developments that were built by relatively minor cities. Oftentimes, these places are dusty, obsolete mining towns in the north of the country that are trying to develop new industries to become anything other than dusty, obsolete mining towns.
That said, there is a big difference between empty apartments that have been sold and unsold inventory. Purchased housing that’s empty for the short term — as is very common in China — isn’t a sign of any kind of economic calamity: the developers got paid, the local government collected their land sale and tax revenue, investors were often able to resell properties for a higher price than they paid. Beijing itself is technically 20% empty. But in China, just because an apartment is empty doesn’t mean it’s not being used. Vacant property in this country takes on multiple functions, from being a place to store savings to being a future home for offspring to move into when they get married, to a degree that’s unprecedented in the West.
Although there are also real ghost towns in China. According to the National Bureau of Statistics, the country currently has 450 square kilometers of unsold residential floor space, which is nearly enough to completely blanket Boston twice. This is an issue that has shot straight up to the country’s highest echelons of power. President Xi Jinping himself has declared the excess inventory of residential property one of the country’s “four battles of annihilation” that need to be won in order to for the economy to continue progressing, and the destocking of unneeded housing has become a national priority.
So what will China do about all of its unsold homes?
Tearing them down
A real estate developer in Heyuan, Guangdong province recently made headlines by tearing down 100 villas that remained unsold for a decade. While the cost of this demolition was reportedly upwards of $18 million, this allows the developer the opportunity to build something else that can actually be salable in their stead.
When we look at the recent wave of new city building that has overtaken China in the past fifteen years what we essentially see is a rough draft of urbanization. By law, developers cannot just sit on the land they buy and wait until a new area is built-up and the market matures around it. No, they must build something almost immediately — it is called urban construction land for a reason. As they take out freehold leases on residential land for 70 year periods and the buildings themselves hardly last half this long, developers essentially have multiple attempts to build something that can ultimately make a profit.
So when we look at China’s seas of empty apartments rest assured that if they don’t sell they will be knocked down and something else will be built in their place before crumble to ruins. Development land in China is just too valuable to allow unprofitable buildings to interminably take up space.
Cut back on building more houses
Municipalities and developers in China are very aware of their unsold housing stock and are often willing to take measures to remedy major imbalances. One of the ways they do this by applying simple supply/demand theory: the less new residential properties going on the market the higher the demand for the available stock.
Local municipalities in China control how much new land they make available for new residential constructions and developers can decide whether it’s in their interest to add to the existing housing stock or to hold off and sell what they already have. The big, unchecked urbanization boom in China is now over, and in places that currently have an excess of unsold housing we’re seeing a drastic cutting back of new inventory being added to the market.
Sell them to the government
I remember the ominous words of a property developer that I once met in Nanhui, a new city that was built to support the Yangshan Free Trade Zone 60 km outside of Shanghai. I asked him how he would fare in the event of a catastrophic crash in the property market, to which he replied, “Don’t worry, the government will take care of it. The government will lose a lot of money but we will be fine.”
In many ways China has a contrived economy. Municipalities, the banks, and many companies are all run by the same organization: the Communist Party of China. So when we talk about things like debt it doesn’t really mean the same thing as it does in the West. The communist party is also an organization that tends to value what it perceives as long term stability over short term profits, and they are often more than willing to bail themselves out — especially when it comes to the real estate market that so many of the country’s other industries depend on.
Guangdong province is currently in the process of enticing some large state-owned enterprises to buy up a large amount of its unsold housing stock, according to the SCMP. Over the next three years, Guangzhou has committed to reducing its unsold commercial housing by 20 million square meters through a program that will see unsold apartments being converted into public rental housing.
What Will Become Of China’s Ghost Cities?
While I wouldn’t say that this is yet a particularly widespread solution for China’s unsold housing inventory, it does show that some municipalities are taking action on a problematic side effect of decades of rampant urban expansion.
Big companies like Starbucks SBUX +2.18% can close hundreds of stores per year and remain a very successful because their gains ultimately outweigh their losses. Urbanization in China can be viewed in the same light. To get an accurate picture of China’s broader real estate situation we need mitigate the failures against the successes and look at the bottom line.
The bottom line here is that the numerous failures of minor developments simply do not measure up against the great urbanization successes that we see in Shenzhen, Shanghai, Wuhan, Guangzhou, Changsha, Zhengzhou, Chengdu — places that have become some of the most economically dynamic cities on the planet. According to Merrill Lynch, in 12 of 50 major Chinese cities there is currently a deficiency of available housing, and the housing supply in economically vital places like Suzhou, Zhuhai, and Nanjing is right on target.
While not every new city is going to be successful and not every expanse of countryside is going to support a forest of high-rises just because they’re planted there, to use the failures of minor new urban developments to make projections on the broader Chinese economy is like using Ironwood, Michigan as an indicator to judge the financial position of the United States. The scale is just too far off.