From my new Substack email newsletter, 'Now and Next':
YouTube vlogger and old China hand ‘Serpentza’ tells us something new about China’s ‘ghost cities.’ But first a brief overview:
Ordinary Chinese people are now able to save money - something undreamed of a couple of generations ago. 70% of it is in real estate, because other investment vehicles are illegal (e.g Bitcoin) or risky (e.g. the frequently crashing stock market.) Investors look to buy and sell apartments, not live in them. There are some 65 million units standing empty.
The Chinese government supports the property market as a form of savings. Serpentza says it’s worth an estimated $60 trillion, or c. 30% of China’s GDP. So it is a very important element for the government also. To keep the people happy the CCP tinkers with the market, dropping interest rates (even to zero) and adding other incentives, to keep it buoyant.
On the other hand, the government is concerned about the expansion of debt. The property developers buy land and materials and pay their employees and contractors on credit; when the State tightened that borrowing it made the developers insolvent, hence e.g. the crisis at Evergrande, which owes $300 billion.
Oddly to us, the apartments are unfinished. This is not because of a residential property collapse as in the Great Financial Crisis in 2010. Paradoxically, if the owner were to complete his investment apartment its value would actually decrease.
The reason, explains Serpentza, is superstition. If someone buys one of these apartments fully equipped and furnished he will inherit the previous owner’s (or tenant’s) bad karma. For the Chinese this magical taint financially marks down a completed property.
YouTube vlogger and old China hand ‘Serpentza’ tells us something new about China’s ‘ghost cities.’ But first a brief overview:
Ordinary Chinese people are now able to save money - something undreamed of a couple of generations ago. 70% of it is in real estate, because other investment vehicles are illegal (e.g Bitcoin) or risky (e.g. the frequently crashing stock market.) Investors look to buy and sell apartments, not live in them. There are some 65 million units standing empty.
The Chinese government supports the property market as a form of savings. Serpentza says it’s worth an estimated $60 trillion, or c. 30% of China’s GDP. So it is a very important element for the government also. To keep the people happy the CCP tinkers with the market, dropping interest rates (even to zero) and adding other incentives, to keep it buoyant.
On the other hand, the government is concerned about the expansion of debt. The property developers buy land and materials and pay their employees and contractors on credit; when the State tightened that borrowing it made the developers insolvent, hence e.g. the crisis at Evergrande, which owes $300 billion.
Oddly to us, the apartments are unfinished. This is not because of a residential property collapse as in the Great Financial Crisis in 2010. Paradoxically, if the owner were to complete his investment apartment its value would actually decrease.
The reason, explains Serpentza, is superstition. If someone buys one of these apartments fully equipped and furnished he will inherit the previous owner’s (or tenant’s) bad karma. For the Chinese this magical taint financially marks down a completed property.
A mild version of this instinct may exist in us, too - how many housebuyers can’t wait to modify their new purchase, however nicely presented, to put their own mark / imprint their personality on it? But in our world, nice houses are worth more than semi-wrecks.
As the trend for mass population movement from Africa and the Middle East towards the UK and Europe gathers pace, perhaps there is something to discuss between us and the Chinese…
How does one access the substack newsletter or is it by invitation?
ReplyDeleteGo to https://substack.com/ and search for 'now and next' - so easy. If you like, please recommend.
ReplyDeleteI have heard that another problem with these 'investment' properties is that they are built shoddily, and start to crumble within 3 years.
ReplyDelete@P: I shouldn't be at all surprised, esp. (a) with corruption possibly influencing inspectors and (b) leaving the property open to the elements.
ReplyDelete