A sample of the Zibo City skyline We are comfortably living in a renovated dormitory on our school campus. But all around the city, you can see the high rises sprouting out of the ground.
Pundits and analysts have been telling us for several years that there is a property bubble in China and it's going to pop. This column by Gwyn Dyer about the "impending" crash sums up the issues well -- and it was written back in March of 2012.
Here's an excerpt, but read the whole thing if you want to worry about something potentially catastrophic that you have zero control over: Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city’s books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances. Land in Wuhan has tripled in price during the property boom, and could quickly fall back to the old price or below if confidence in the city’s future were to falter. That is quite likely to happen, since Wuhan’s housing stock is already so overbuilt that it would take eight years to clear even the existing overhang of unsold apartments at the current rate of purchase, and never mind all the new stuff.
Pundits and analysts have been telling us for several years that there is a property bubble in China and it's going to pop. This column by Gwyn Dyer about the "impending" crash sums up the issues well -- and it was written back in March of 2012.
Here's an excerpt, but read the whole thing if you want to worry about something potentially catastrophic that you have zero control over: Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city’s books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances. Land in Wuhan has tripled in price during the property boom, and could quickly fall back to the old price or below if confidence in the city’s future were to falter. That is quite likely to happen, since Wuhan’s housing stock is already so overbuilt that it would take eight years to clear even the existing overhang of unsold apartments at the current rate of purchase, and never mind all the new stuff.
A few weeks ago Ross and I were visiting with a colleague whose husband is a high-ranking municipal official. I asked her, what did she think would happen with property prices? She shrugged her shoulders elegantly and said, "if anyone knew the answer, they'd be very rich."
Well, the bubble hasn't popped yet. Deflated in some parts, but it hasn't popped.
It's interesting that there can be a housing bubble when there is no such thing as privately owned land in China. After the Revolution, land in the countryside was collectivized and farms are still owned by village communes, not by the individual farmers who til the soil. In the city, all land and property was gradually taken over by the State. But the government devolved from a flat-out communist system where workers worked at state-run factories and lived in state-assigned housing, to a system that allowed people to chose and purchase their own apartments.
There are some very grand dwellings indeed, apparently uninhabited, near the campus. The development pictured below has a large empty "business office" building and some huge houses. Classical music is played through speakers along the driveway. Like all housing developments of any pretension, this has a guardhouse as well.
In the poster for this development, you can see the Chinese Dream represented as an affluent family -- silver-haired grandpa taking his ease while the proud parents beam at their accomplished son and daughter. (Rich families can afford to pay a fee to have more than one child and skirt the One Child policy.)This dwelling is definitely for the one percent. The vast majority of urban Chinese live in modest apartments. Old neighborhoods of simple one-storey dwellings have been demolished to build apartment buildings. Since you cannot actually buy land, but can only lease, this has me wondering about what will happen with real estate prices as these apartment buildings -- many of them shoddily built-- get older.
For the middle class, it is becoming an expectation that the bridegroom (and/or his parents) will provide his bride with an apartment, preferably fully paid for.
Finally, some analysts offer this reassurance about the Chinese bubble -- since the Chinese put hefty down payments on their apartments or even pay for them with cash, a drop in housing prices here in China will not leave them "underwater" with a mortgage that they just walk away from and hence, price deflation in China will not cause the havoc that the US housing crash did. Here's a lengthy but interesting analysis.
But I'm no expert, and judging by all the predictions of a crash that haven't materialized, neither is anyone else.
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