Tag Archives: vacant property

What happens when there are 65 million vacant homes in China

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A review of a new book about China leads with this information about the recent “building binge” in China:

This spring in Beijing, I asked a businessman an obvious question about the risks to China of an economic crash-landing, to which I got a less obvious reply. It is impossible to travel around China without concluding that the place is in the grip of a building frenzy. In less than a decade, China has pumped around $4 trillion into property; tens of millions of houses and apartments as well as Ozymandian public buildings and factory estates – and what hits the eye is how much of it all stands empty. Across the country, uninhabited concrete blocks scab the land, not only in the megacities of the eastern seaboard but also in the sleepier southwest; from filthy mining towns in Henan, all the way to entire ghost towns in Inner Mongolia. With an estimated 65 million homes standing vacant, residential construction last year was still running at a rate of five times demand.

Dwarfing even the $2 trillion borrowed for the Railway Ministry’s high-speed networks since 2008, and the thousands of kilometres of 4–6 lane toll roads with barely a vehicle on them, China’s building binge is the most striking example of what Prime Minister Wen Jiabao famously, but impotently, denounced in 2007 as the country’s “unbalanced, unstable, uncoordinated and unsustainable” model of economic development. Now, with house prices and sales sagging in response to government restrictions aimed at deflating history’s biggest ever property bubble, and with local governments as deep in bad debt as the developers, I asked the businessman what was to prevent the bubble actually bursting, in a spectacular financial explosion?

His answer was that it wouldn’t happen. A lot of these empty apartments, he said, had been bought by Chinese families as investments, and they would patiently hang on to these speculative purchases because interest on savings was derisory. Secondly, although some developers would go to the wall, the bubble would simply not be allowed to burst for fear of public anger as well as economic chaos. China had massive reserves if need arose, he said, and would not hesitate to bundle nonperforming loans off into a state “bad bank”. Its plans to build 36 million “affordable” homes by 2015 would also help to offset faltering private sector demand. When in a hole, in other words, the Party keeps digging.

This isn’t the first piece I’ve read suggesting that we could be headed toward a pop of the property bubble in China…

Suburban downtowns turn to art to cover up vacancies

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Suburban downtowns have struggled for decades: the advent of the strip mall and shopping malls after World War II lured away shoppers. Suburbs have pursued numerous strategies to sustain or revive their downtowns but vacant storefronts can still linger. In recent years, it has been popular to fill these empty spaces with art:

Hamilton and some suburban officials believe using vacant buildings to display art is a good way to help suburban downtown districts keep up appearances while exposing art to those who otherwise would not browse around art galleries.

“I think art in a community plays an important role in revitalization,” said Jeff Soule, director of outreach for the American Planning Association, whose organization encourages creative use of vacant spaces. “Art adds a sense of place to a neighborhood. It shows that people care about the community.”

This push toward art seems to make a lot of sense: it hides vacant spaces, it allows local artists, residents, and young adults to participate in creating art, and suburban shoppers and residents get to see some interesting pieces. But, I remain somewhat skeptical about the revitalizing power this kind of art can have. In a downtown that simply has some vacancies because of the economic downturn, perhaps art works as a filler and keeps up appearances. But in downtowns that struggle all the time (and there a lot of these in suburbs), can public art really make a difference by bringing in enough foot traffic to revive businesses? These always struggling downtowns have much bigger problems that need to be addressed.

Of course, public art has not been limited solely to suburban downtowns: big cities have pursued this option for years. I vividly remember the stir created by “Cows on Parade” in Chicago. But again, these pieces work because there is already a critical mass of people in the area even as they can then attract more people.

The possible housing bubble in China

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While the American housing crisis continues, FinanceAsia takes a look at the current housing situation in China:

Many homebuyers nowadays in China consider their property assets as part of their long-term savings plan, as well as a hedge against inflation.

Why property? China’s tightly run financial system leaves only three places for its zealous savers to put their money. Bank deposits are one option. But they yield 2.25%, less than the 3.1% rise in May’s consumer price inflation. The equity markets are a second choice. But stocks have been performing poorly; Shanghai’s benchmark index was one of the world’s worst performers in the first half of 2010. (And the bond market is underdeveloped.) Even with its high transaction costs and manic price moves, property has become the preferred investment choice for everyone from young married couples to middle-aged factory workers trying to ensure their retirement.

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

That’s a lot of vacant property. This is a testament to the power of cultural norms regarding housing: since renting is less desirable, a large percentage of the housing stock goes unoccupied. Also, savings behavior seems partly driven by these norms (and perhaps also by limited economic returns elsewhere) – houses have developed into investments rather than just places to live.

I don’t know much about the Chinese housing market but it is intriguing to read about non-American norms and values attached to housing. I wonder how these norms and values developed over time.