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.
Plus, I think you're missing a far more essential point: China doesn't give a fuck if every real estate developer goes bankrupt.
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.
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.
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.
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...?
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.
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.
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.
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 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.
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.
Fair enough. I think then it's important to distinguish between what subsidies are worth tariffing and what subsidies are not. If Germany rezones an area to allow car factories to be built, is that a subsidy worth tariffing?
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 mean, in this case it's more that the developers lost money and the government gained assets sold below book value... That's pretty good return imo. The developers' investors got fucked, yes, but have you looked at, say, Evergrande's ownership? Not all Chinese developers are state-owned. In fact, the distressed ones are not.
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.
Except... Do you know how China imputes rent for their GDP calculations? It's the construction cost depreciated linearly over the life of the building. Think about that for a second, then come back to me. I can explain it to you, but when I realized what it meant it shook me to the core so maybe it'll have the same effect on you lol. For reference, the US imputes rent by asking "what would the homeowner have paid if they had to rent."
Fair enough. I think then it's important to distinguish between what subsidies are worth tariffing and what subsidies are not. If Germany rezones an area to allow car factories to be built, is that a subsidy worth tariffing?
Eh, I don't really have a strong opinion on tariffing. Tbh I don't really have strong opinions about subsidizing private equity, other than they really shouldn't really exist.
Under "free market" capitalism subsidies nor tariffs should exist by definition. And under socialism or communism, I would much prefer that the state employ the workers to do the work of the state. Subsidizing private equity just moves the people's money into the pockets of middle men.
I think the current global regression back to an odd stage of mercantilism is the product of the moneyed class in China and the west attempting to goad political leaders into abandoning their economic principles for greater profit margins.
I mean, in this case it's more that the developers lost money and the government gained assets sold below book value... That's pretty good return imo. The developers' investors got fucked, yes, but have you looked at, say, Evergrande's ownership? Not all Chinese developers are state-owned. In fact, the distressed ones are not.
Right, but the developers are way over leveraged meaning that it's not really their money but the banks. The banks/government is making the best out of a bad situation, but they are still loosing substantial amounts of capital. One of the reasons this kicked off in the first place was the government trying to get a handle on private equity borrowing more than their company is worth. That's not really not criticism on the government action, it's best to pull that bandaid off as soon as possible, but it still hurts. I think it's mainly the fault of local banks who have probably been either careless or fraudulent in their reporting to the central bank.
Do you know how China imputes rent for their GDP calculations? It's the construction cost depreciated linearly over the life of the building. Think about that for a second, then come back to me. I can explain it to you, but when I realized what it meant it shook me to the core so maybe it'll have the same effect on you lol. For reference, the US imputes rent by asking "what would the homeowner have paid if they had to rent."
Again, this just isn't something I really care about much. GDP and how it's calculated is mostly legal fiction, utilized primarily for international bragging rights and as a way to lull investments from foreign capital.
It sounds like China utilizes user cost approach, and the west utilizes the comparison approach. China's approach makes sense for a more centralized lending apparatus, as it can help prevent the boom and bust cycle so common in western real estate market. But it's still susceptible to market collapse if you miscalculated building cost or depreciation values, and makes it harder to sustain value in real estate investments unless you are constantly building more and more.
I think in the end it just creates two different types of problems. In the west the comparison approach provides less motivation for developers to build an adequate amount of housing. In China, it creates too much incentive for developers to overdevelop housing to the point where it devalues the very concept of individual investments in housing.
I think a better solution would be to consider affordable housing development to be a natural monopoly that is provided by the government without the input of private capital. But that would be a blow to GDP for both systems, and I think we both know how the capital class of both China and the west would respond to that.
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.
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.
Seriously, that describes what I've seen in the housing market these days to a T
G'Day from the land down under of dogshit-quality housing-bubble-overpriced new builds. God I love how much money corporations are making.
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.
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.
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.
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.
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