China’s glut of idle property causes headache for the government
The industry that has traditionally powered about a quarter of GDP has been in a downward spiral that policymakers have struggled to halt
All across China, from Beijing in the north, to Shenzhen in the south, millions of newly built homes stand empty and unwanted. There were nearly 391m sq metres of unsold residential property in China as of April, according to the National Bureau of Statistics. That is the equivalent of Manchester and Birmingham combined – and then some – sitting as vacant, unwanted property.
This glut of idle property has caused a headache for the government, shaken the world’s second largest economy and raised tensions over the purpose of housebuilding in a nation where property investment had been viewed as a safe bet.
Since the real estate sector was sent into a tailspin in 2020, caused by the pandemic and a sudden regulatory crackdown, the industry that has traditionally powered about one-quarter of GDP has been in a downward spiral that policymakers have struggled to halt.
The crux of the problem is that, with shaky faith in the economy and big property developers failing to deliver on paid-for apartments, potential homebuyers are keeping their money out of the market.
They are unwanted for the price that is wanted but for free I bet they could fill them up in a jiffy but that would make them dirty filthy communists and china don't want that ??? /s
Ehhh, you would think that. However, China currently has more housing than people. I think at the moment the excess housing in the country could home an extra 150m people.
You can knock them for ignoring basic fundamental economic ideas like supply and demand, but it's not like they have a large homeless population being unsheltered.
This is, again, just a plainly incorrect take. Basically everyone in China is housed, yes, but a vast proportion of them still live in rural villages. The rural-to-urban transition does need to be planned for, and it's been a huge factor in China's real estate market. China's urbanization rate today is 66%, compared to 75% in Russia and 83% in the US.
I don't really see how your rebuttal conflicts with what I said? Unless you are claiming that developers were building housing for an eventual urbanization project that's going to migrate 150m people to cities within the next year or two......
These are still real estate companies we're talking about. They aren't wanting to be left holding the bag for years while their investment properties dry rot from prolonged vacancies.
Urbanization is expected to hit 75% by 2030... This is analysis corroborated by Morgan Stanley and others, so, unironically, yes.
That's still a bit of a long time for developers to have their money wrapped up in empty apartment complexes. Large buildings like that can start having major issues after months of vacancies, let alone years.
I think it's still more likely that developers'production exceeded immediate demand than it is for them to have planned for them to be vacant for years.
Either way, it's still not an economically sound idea. I think if they had planned for this, it wouldn't have hit the real estate market as hard as it has.
Basically, government officials knew that at some point they needed to aggressively overbuild real estate capacity in order to meet the urbanization demands. I think they predicted an incorrect curve: whereas they perhaps anticipated that urbanization would follow a trend more like Korea (74% at a similar stage in their urbanization trajectory), instead China is following a curve similar to Taiwan (~66%). A mistake in policy, yes, but it has localized effects.
Plus, I think you're missing a far more essential point: China doesn't give a fuck if every real estate developer goes bankrupt. That's just a cost of doing business. Instead, China's just swooping in and buying up distressed assets to turn into public housing. Homeowners aren't left holding the bag: developers are.
Just because they operate a mixed economy doesn't mean they can ignore material realities. Investments going unrealized arguably have more negative outcomes for more socialized markets.
You can't wring blood from a stone. Its not like it's just the developers cash being used to build the housing, there are subsidies and investments from banks, which are owned by the government. So if a project goes under, the best case scenario is that they buy it back to get some return on investment, but that's still robbing peter to pay peter. It's just not sustainable, especially if you aren't making wind on your other plans like urbanization.
China has seen the hottest real estate market it's ever seen. How many subsidies were banks handing out?
It kinda depends on what you consider to be a subsidy, but China has made significant investments into the housing sector to achieve "the hottest real estate market it's ever seen".
The biggest of these are in their policy surrounding land management. This allows corporations to skip through some of the most expensive and time consuming aspects of land development. I actually think this is extremely beneficial if utilized correctly, and we in the west should learn to implement it to some degree.
However, if it's utilized to build way more housing than necessary, then the land development policy isn't making any returns for their investment. The significant amount of resources, land, and political capital could have been utilized for something they actually need.
The second big one is subsidizing low income housing programs. Yes, they are turning some of this excess housing to more affordable living spaces. However they are doing this by having local governments purchase them with money borrowed from the central bank. It is just robbing Peter to pay Paul, and does not mean the central bank made any return on the money they originally lent to developers.
Which returns us to the largest problem with the market, the central bank lent out too much money to developers, whom utilized that to build an excessive amount of housing. Banks are supposed to evaluate things like roi and supply and demand to make sure borrowers aren't over leveraged to the point where they cannot realize a return on investment. However, if that risk assessment conflicts with set policy in a planned economy, then there's a risk that banks will forgo the vetting process to appease policy makers.
Land management. In the same way that changing zoning is not a subsidy, changing land management rules is not a subsidy. It's government support, agreed, but to call it a subsidy...?
Subsidizing low income housing. This has been a new policy used to seize distressed assets and make sure they don't sit... Well, distressed. The central bank is an arm of the government, and the government is achieving it's goals of housing access. At the end of the day, your claims on profit detract from the actual benefits of public housing.
By your arguments, public transit is robbing Peter to pay nobody, because the government sure as hell doesn't recover operating costs from fares. That's never been the point of public infrastructure.
I think I prefaced the statement with it depended on what you consider a subsidy. I admit it isn't semantic, but I really consider any government assistance to private equity a subsidy. Mainly because it in truth and investment in which the government is hoping for a return.
Right, but this is a reclamation action. It's not what the original investment was meant for, and surely they aren't getting the same monetary return they originally hoped for.
I support governments subsidizing affordable housing, this is another thing I think western states need to realize. However, it doesn't seem like they needed to focus on that much housing at the moment, and it doesn't seem like that was their original intention.
I think the government's entire existence should evolve around fulfilling their public's needs, including adequate public transportation. The key word there is need. The Chinese government didn't need to throw billions of dollars to private equity to build more homes than necessary. They did it because they wanted to maintain their gdp, so they could flaunt their economic vanity alongside the US on the international stage.
Does china house them or does china do something else with them?
Yes.
Well they could use them as makeshift landfills for their garbage EVs, but people cannot live in them as there is no water, gas or electicity anywhere. And that's only half the problem because there are far more empty shells for an excuse of a home than there are people to populate them. It's one giant ponzi scheme that got completely out of hand over a decade ago and the government struggles a lot to restrain and keep it going at the same time so it doesn't collapse.
yeah it is funny that an article talking about empty, unwanted units also talks about not delivering for poeple that bought them. Its a wierd situation.
What China needs to do is figure out a way to export this property to America, which needs more affordable homes.
That's doable, right?
I live in China. Trust me, you don't want to have those homes in the US. The house I live in has been completed in 2016 and I'm the first tenant, moved in in 2018, and it's got more issues than my dad's house from 1965. Houses here are built as cheaply as possible, skimping on building materials, safety, plumbing, insulation, wiring, etc.
The pricing bubble is just a joke on top. The actual value of the real estate here should be about 20-25% of what it is in reality - for example if I were to buy the house I'm renting right now, I'd break even after 114 years. Not taking any repairs or interest into account.
Sadly, that’s not much different than the US
We're talking about high rise buildings with cardboard mixed into the concrete that collapse within less than 5 years in many many cases. They often don't have plumbing or electricity as they are only constructed to get people to invest in property, not to live in them. US citizens really don't know how much regulations and their enforcement are doing for them.
How many new builds have collapsed in <5 years? If you're claiming many many, you should be able to cite at least 5, right?
Nah, the situation is way different in the US. The construction quality is way way better due to building codes and actual enforcement of that. Though some construction does fall through the cracks, it's a good bet that the vast majority of construction here is safe. There is a pricing bubble here, but that's for different reasons. And renting here is nowhere near as cheap as this person says. They said it would take 114 years to pay back the cost of a house compared to renting. In the US, rent is usually slightly more or even much more than a mortgage and goes up over time, so your worst case scenario is less than 30 years.
Yes. One reason why new housing in the US is expensive is because there are way more regulations now than there were years ago. Houses now are much safer and built better. But that makes them more expensive.
Tell me about it. I'm in the middle of construction right now, and the various hoops I've had to jump through and mazes of codes I've had to navigate are insane. And it all makes things so much more expensive. And the number of inspections and permit plan check meetings I've had to do has taken so much of my time.
I probably shouldn't have tried to GC this myself.
Remember that all of those regulations are for a reason. Sometimes the reason is "contractors donated money to an elected official, but it's usually a good result. It's better to have higher quality than lower.
Lmao have you seen the new builds in California? It's not that you can punch through walls, but that you can literally fall through them. "Fire codes" nominally exist, but good luck enforcing them. All the work is shoddily done, things leak (for the one time a year it rains), the garage has exposed nails everywhere, and the doors are barely slapped together. Cabinets are basically an afterthought, the floors are basically hollow, and you can hear everything from your neighbour, your upstairs floor, and the street. A 2b1b in San Jose rents for $3700 a month, but sells for $1.2 million. Your mortgage is a $6400 monthly payment, plus $1200 in monthly property tax, plus home insurance and maintenance. US homes in prime real estate markets are profitable solely because of housing appreciation.
If you're talking about a place in Detroit? Yeah, ROI is high, but so is risk, and housing appreciation is low.
Think about it. If rent was more than the corresponding mortgage, everyone with any amount of capital would acquire infinite homes to fill the gap. The efficient market hypothesis isn't perfect, but it applies here.
Edit: if you do things yourself, unfortunately you don't get the luxury of corrupt and negligent officials so you probably have to build a proper home. Such is life.
I've lived in Los Angeles for over 20 years, so I think I have seen what construction is like in California. And I have family in other states who work construction, so I also have an idea of how much stricter the building codes are here in CA (including how much stricter the building inspectors are). Almost everything you complained about is about workmanship or level of finish, not actual build quality. It might not be very sound proof, but it almost definitely won't fall apart under normal use (there's a reason that condo in Miami was such huge news). Also, if you are able to fall through a wall with 16" on-center studs and 1/2" drywall then you must be way more dense than I am, since I would have to run fast to get enough speed hitting shoulder first to break through, let alone a slow speed fall into a vertical surface. I've never been to China, so I can only repeat what I've heard that the quality is much lower than in the US.
As far as you rent vs buy example, you took the extreme case of Silicon Valley. Even in Los Angeles you can buy a single family home for $1.2M that rents for $6k/mo. You don't even have to look at Detroit. Your example is also off. A 2b 1b apartment rents for $3700, but a condo of that size is $600k not $1.2M. And the mortgage on $600k is roughly $3200/mo plus $600/mo in taxes. If you look at single family homes, yes you are starting at $1.2M, but those are minimum 3br (or very large 2br) and absolutely not renting for $3700/mo. If you go away from the extreme case of SV and somewhere completely normal like the nice suburbs of Indianapolis, you can buy a small house for $300k that rents for $2000/mo.
https://www.zillow.com/homedetails/445-Bradley-Ave-San-Jose-CA-95128/19585003_zpid/
https://www.redfin.com/CA/San-Jose/445-Bradley-Ave-95128/home/731757
That was a whole lot of words to say "I don't know what I'm talking about about."
https://www.redfin.com/CA/San-Jose/1995-Sumatra-Ave-95122/home/1729649
https://www.rent.com/california/san-jose-houses/3-bedroom_2-bathroom?property-type=houses&bbox=-121.8580,37.3009,-121.8151,37.3520
I can link things too. The house you linked was last sold 40 years ago for $126k, so the person who owns it is renting it out for many times more than their mortgage. You might not be able to rent out a place for more than a mortgage today in that specific city, but if you own it for 5 years then you might be able to. Also, 2br 1ba single family houses in San Jose are fucking weird. If you start looking at 3br 2ba houses in that area then it gets a little more normal. If you look at 2br 1ba condos, the prices are also more normal. But you ignored what I said about Silicon Valley being an extreme case.
90% of the country you can buy for less than renting. You asked why anyone would rent when buying is cheaper. And the answer is because buying is hard. You need to have a lot of money saved up, which most renters can't do. You need to be able to pay for repairs, which most renters can't do. You need to know you aren't moving jobs any time soon, which a lot of people don't know. And nowadays you are bidding against corporations and investors who are bidding full cash, and sellers would prefer to do that instead of waiting on a mortgage approval that might fall through.
That's because they're not arguing in good faith.
Honey, the OP posted a house in what's essentially the slums of San Jose. It's sandwiched between a highway and an airport in an act of urban planning that would make Robert Moses weep with pride. Who's not arguing in good faith?
The one who starts a comment with such a condescending tone. Honey, you seem like the bad guy here.
Aww honey, don't be mad because you got proven wrong.
So... I take it you're not from San Jose? Overfelt High is notoriously a highly minority-dominated, economically-disadvantaged, high-crime area. It's next to the 101, segregated from the rest of the city, has obscene noise pollution, and, again, is notoriously economically-disadvantaged. You would not want to live there.
Edit: the fact that you would even link to that house shows how out of depth you are in this. That's fine... I guess LA is an easier housing market to understand. Maybe the Bay Area is different, but you still should really not be linking random shit anyway. It shows that you're willing to make arbitrary claims without sufficient knowledge on the issue.
G'Day from the land down under of dogshit-quality housing-bubble-overpriced new builds. God I love how much money corporations are making.
Seriously, that describes what I've seen in the housing market these days to a T
You wouldn't want US homes in Europe, either. Most of the world has astonishingly shit construction in the name of higher profits and the understanding that housing has very limited lifespans.
Some US homes are great - robustly built, well-insulated, quiet, no leaky sewage, no leaky building membrane, wires routed properly, etc. Unfortunately, a lot of them were built decades ago. If you're evaluating them in terms of materials or construction quality, US housing quality has gone straight off a cliff. Sure, there's a bunch of glass facades on new buildings, but they hide the fact that sound insulation between units is nonexistent, the heat insulation is barely slapped together, the outlets aren't all plugged in, and the hot water either turns completely on or completely off. Tour a new California townhouse and tell me again that it's not built as cheaply as possible. Developers have figured out how to be stingy on everything you can't see and instead dump money on fancy appliances and a marble countertop... Even if the toilet clogs if you look at it funny and you can hear your neighbour three doors down humming to himself.
Meanwhile, most US new build apartments are 5 over 1s, which are notorious for being a tinderbox. Though, US fire code is really well done, so if there's a fire odds are you can make your way out in time.
Oh true, my dad's house that I used to compare the ones in China to is in Germany.
Yeah, German houses are so nice man. Like I don't think I could get a US builder to build me a German house if I tripled their budget. They just don't know how.
The construction quality is… shall we say, not great. Pretty sure lots of it would not pass code in the states - let alone Europe, Korea, or Japan.
That's okay, I don't think we have teleportation technology yet anyway.
That shouldn't be a problem, most landlord owned properties don't pass code here either
at the time it was built?
Hm. That didn't work out too well. Maybe they could switch over their economy to be based on tulip bulbs? That's bound to work forever.
https://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds
In a communist state, why are unsold homes an issue? Why not just re home the millions living in bad conditions?
it's because China is a capitalist country with a capitalist economy.
Can't they just give the homes to people to fulfill their Communist agenda?
This is the best summary I could come up with:
Since the real estate sector was sent into a tailspin in 2020, caused by the pandemic and a sudden regulatory crackdown, the industry that has traditionally powered about one-quarter of GDP has been in a downward spiral that policymakers have struggled to halt.
The crux of the problem is that, with shaky faith in the economy and big property developers failing to deliver on paid-for apartments, potential homebuyers are keeping their money out of the market.
Tao Ling, an official with the PBOC, said that local state-owned enterprises would be encouraged to use the funds to buy “reasonably priced” homes and turn them into affordable accommodation.
“While these local players are desperate to prove they can continue to deliver growth, they will be struggling with other priorities and unwilling to add to their debt obligations for investments that won’t provide any long-term profits.”
The authorities “know there isn’t really market demand” for the acres of unsold property, says Alicia García-Herrero, the chief economist for Asia Pacific at Natixis, an investment bank.
García-Herrero expects that there will be more fiscal reform to boost the impact of the policy, likely at the long delayed meeting of the Chinese Communist party’s central committee in July.
The original article contains 958 words, the summary contains 202 words. Saved 79%. I'm a bot and I'm open source!
I'm confused. Why would policymakers want to halt the decline in real estate as contribution to GDP? GDP growth is still 5% YoY even as the real estate industry is in freefall. Big Chinese developers want kaput, and still GDP growth is projected to be 5%. Basically: who cares? Sector rotation is normal, isn't it?
Apparently a lot of people's investments are tied up in those properties so if they values tank they'll lose everything. Normally I wouldn't sympathize at all but Chinese people have very limited options to invest their money and grow their savings. They can't just easily invest in the stock market. Property was one of the ways of doing this. If enough people lose enough money , the good old mandate of heaven gets its foundations rocked.
Again, so? China's household savings rate is notoriously high because Chinese consumers do not consume at Western rates. Real estate should not be an investment and the people that got burned knew what they were signing up for. Everyone can easily invest in the stock market, but stock market returns do not go up infinitely because value is extracted by the government rather than passed down to shareholders. The safest investment has always been bonds, and municipal bonds in particular often have outsized returns relative to inflation.
Anyway, the market corrected 30% (after rising hundreds of % over the past decade), some people who could afford multiple homes lost some money, woe is them.
If you have a single home, you're in the same position you always were: you can sell your house and buy a new one, because at the end of the day you need to live somewhere. If you have multiple homes, you took a sizable loss, but you were buying up multiple homes and nobody likes landlords.
Basically, you're saying that the rich should get richer at the cost of housing access for the poor. Not very socialist of you, eh?
Have you considered writing comments while not in a state of apoplectic rage? That way you might actually make a reasonable point instead of whatever this word-vomit is.
Aww, guess you ran out of counterarguments. That's ok.
you say "property should not be an investment".
that's lovely. that's fine.
He didn't disagree with you, so stop acting like he did.
He said that it's one of the few / the easiest way for them to "invest" their money. Not save.
If your entire argument is that the Chinese stock market is as easy to access and use as the housing market, I'd want you to be very sure, and clear. Including bonds.
Ultimately, it looks like you just want to fight, but no-one is fighting you.
Small dog syndrome.
I, too, like evaluating investments based on "how easy is it for me to make" rather than "what is the risk/return."
you do? I'm very happy for you then. no-one else is evaluating anything here, so I'm glad you've found something to occupy yourself with.
Is this a common thing in the US? Evaluating investments based on how easy they are to make, independent of their PnL?
I wouldn't know. you're the only person evaluating investments that I know of.
You claimed that real estate is one of the easiest ways for people to invest their money.
nope, I haven't claimed anything.
you might be thinking of someone else. You can tell when you're communicating with different people on the internet by the name that is above the text they've written.
in any case, you should reread my comment a few back which addresses the subject of "easier".
I'm not sure how to answer this. We're talking about empty places. You think these people were buying and building these places to lose money? As you point out, it's been a great investment until now. Now the bubble the government created is bursting, which is the problem the article is talking about.
The people who invested knew that they were buying investment properties. The developers sold based on urbanization projections that did not follow through, the investors bought it up, and now the developers lose money and the investors who could afford to buy multiple homes lose money.
How terrible.
(As an aside, I think China's reported urbanization rate is below reality because a lot of places that would be considered urban in Europe or North America are listed as rural in China). Under China's definition, living a 15 minute drive from the center of a 200k-population city could be a "rural home." I think that China's urbanization numbers sent a false signal to developers that more development was needed, when in fact China was much further along the urbanization curve than the numbers indicated.
I don't care that they are losing money, but the point is that it represents a threat to the stability of the government.
Developers losing money and consolidating property assets in the government? What, exactly, does this threaten?
GDP growth? It's been a 1.5% headwind, and China is still blowing through GDP projections.
Climate change? The collapse of the construction industry has been a huge net positive for emissions reductions.
Housing prices? Those have been going down.
Savings? Only insomuch as if you intended to own multiple homes (that is, you're the landlord class). Otherwise, you still own a single home that you need to live in.
Maybe you should ask the Chinese government why it's a big deal, because they are the ones who have been propping it up and are attempting to do so again now. It's all right in the article.
The Guardian doesn't speak Chinese (or rather, they don't understand it). Their reporting on China is consistently incompetent for that single fact. They refuse to dig through Chinese reports and Chinese data because they can't understand it. The data is right there, plainly published for the world to see.
If they did, they would know that real estate's contribution to GDP has fell off a cliff ever since Xi Jinping declared "housing is for living, not for speculation." If they did, they would know that investment into real estate has pretty much entirely collapsed and shifted into manufacturing (clean energy, EVs, nuclear, robotics, etc.) If they did, they would know that their stories about "ghost cities" a few years back... Ended up being, well, cities. If they did, they would know that the prevailing thought on Chinese social media is that the government is allowing real estate developers to fall... And they're definitely falling.
That's what the data tells us. The bubble is actively deflating as we speak, and many estimate it to have been in excess of a 1% headwind on GDP growth in 2023... Citi just revised their projections of full-year GDP growth to 5%, and so have Goldman Sachs and BNP Paribas.
You didn't demonstrate that they are wrong, you just said they are wrong. You didn't even contradict the claims made in the article: that the government is clearly making efforts in an attempt to prop this up.
Well let's start with, the prevailing opinion on social media here is that the Chinese government is attempting to prop up the real estate market, but it's still "deflating." Huh, interesting how "prevailing thought" on social media doesn't really mean all that much.
And they are pointing to actions that contradict this "prevailing thought," actions you haven't actually challenged. And those actions that they point to shows that it's falling despite their efforts, not that they are allowing it to happen. Again, you seem to just be ignoring facts you don't like.
We can believe whatever reality we want when we don't have to consider the facts. Just like good Trump supporters.
zeph is really trying to start a fight with absolutely everyone here.
I see it as more desperately trying to defend the Chinese government.
Local stimulus, which differs from Central government policy because contrary to popular belief the Chinese government is not a monolith. Different provinces want to get investment at the cost of other provinces, but this does not change the fact that in aggregate China's bubble is actively being deflated by the actions of the central government. The prevailing trajectory of the market, and the actions which the central government have taken in this regard, are very clear. In modern terms, this is "picking up pennies in front of a freight train."
sigh do you know what the minimum down payment for a home in central Beijing is? 50%.
Give me an action that indicates the central government is not trying to institute a controlled collapse ("soft landing") of the real estate market. The numbers don't lie, but apparently you do.
Let's remember where this all starts from. The other poster said that if it tanks, people lose everything. You are now talking deflating the market softly, which indicates it is a bubble and that they are just trying to let the air out slowly. And ultimately, the top level point still stands: people are going to lose money, whether that be quickly or slowly.
Whether the the government is trying to "softly deflate it" or keep it growing (I suspect the latter, because again people losing all of their money in things the government has been encouraging and pumping up for decades is not a great look for them), they are propping it up, because letting the bubble burst would be a disaster.
It's funny that you call me a liar, but then state that this has nothing to do with the central government, and then turn around and quote something from the article that is talking about the central bank of the country. lol You think see dishonesty in me because you know you are being dishonest.