What is the story of the “Ghost Town” in China?

After two decades of “massive intervention” in the housing market, the Chinese government has not only failed to achieve its ultimate goal of “providing housing for first-time homeowners”, which has led to two crises in the country’s property market and economy, according to TradeNews. . “World Economy” surveys of China’s housing policy show the end of overt and covert government support for Chinese construction giants to “build new cities in the suburbs” without “reducing housing prices in large cities through voluntary migration.” To these “new areas” only led to the production of “ghost towns” in the suburbs. Chinese housing officials thought that by building housing towers outside the big cities, they could relocate the population and help provide housing for families, but because these supplies were formed without matching demand, (real) consumer demand did not establish a significant relationship with the suburbs.

International Monetary Fund 2016 alert

Intervention in the construction market caused suburbs full of houses to artificially bear the name of “new city” but to practically avoid “providing attractive residential services and competing with big cities” and this parameter in the role of “barring communication between offers The suburbs and the demand of the center “cause the houses outside the main cities to be left empty”. A prototype “ghost town” in China – Ordos – was built 20 years ago with the aim of “providing housing” and today the population is equal to one twentieth of the capacity of buildings in this area. The International Monetary Fund (IMF) has warned China of a “ghost town” crisis in 2016. At that time, the number of vacant homes in China was 49 million.

Production of “empty house” with bank credits

An official report on China’s housing situation states that there is as much “vacancy” in China as there is “one France”. A new estimate of the total number of vacant housing units in China indicates that there are 65 million vacant homes, which is equivalent to the population of France. More than 20 percent of China’s housing stock is uninhabited, but even more so in small towns and suburbs. Most of the vacant homes are located in suburbs built by large corporations such as Evergrande in the form of luxury towers. Created in the world economy. This heavy debt is the result of government intervention in the housing market, which has taken the form of a crisis for a company that has made irreversible investments without regard to the real state of housing demand. But in addition to the crisis, the Chinese housing market has also been hit by this seemingly “problematic” intervention.

Two damages to the housing market with “sideways” and “parallelism”

This model of mass housing, due to “government interference”, has caused two damage to the Chinese housing market. On the one hand, the Chinese government’s financial and facilities support as the backdrop for suburban housing construction has led to the formation of these massive real estate constructions and investments, alien to the formulator and market work – constructive needs assessment before construction – and “Parallel supply alongside demand in large cities will have no effect on controlling China’s housing inflation.” As a result, with the accumulation of consumer demand in large cities, access to affordable housing in these cities has continued to decline and the “expensive housing” crisis in China has been prolonged. This damage is the same as the intervention, because without intervention, the suburbs would be formed “naturally with all the attractive urban services” and today the circulation of “empty houses” in China does not reach a record. But now, the suburbs of China are just full of empty houses that look like a “ghost town” rather than a “city of life.” The second disadvantage is the “exclusion” of the private sector active in the Chinese construction market by “government intervention with the support of a construction giant.” What strongly affects supply or demand. Behind-the-scenes government support for China’s second construction giant to build housing in suburban and unattractive cities has virtually taken away the opportunity and resources to build housing in high-demand cities from other construction activists. This has played an important role in the shortage of consumer supply versus consumer demand in large cities. At the same time, the heavy debt to Overgrand has been created by this model of intervention in the housing market, the consequences of which could be problematic for China’s developing economy.

Three Challenges of Chinese First Homes

China’s housing market now faces three major challenges, including “supply shortages in big cities,” “price growth,” and “vacant home inflation.” Interprets China as a heterogeneous market; The high volume of houses in cities where there is no demand – the city of ghosts – on the one hand, and the high volume of demand in cities where supply is low, ie large cities. For the past two decades, the Chinese government’s policy has been for municipalities to build new suburban cities under the “urban planning” program. These cities are now “grade 4 cities” in this country, many of which are “ghost town” and “full of empty houses.” “World Economy” surveys of this market show that the average house price in China is currently the figure of 6,475 dollars. Over the past decade, house prices in Chinese metropolises have tripled, in large cities 2.7 times, and in medium cities 1.5 times. Housing prices in uninhabited suburbs are one-third of the national average. This is while a normal and livable suburb is usually half the price.

Two hours to “Ghost Town”

If you drive outside of Shanghai or Beijing for an hour or two, you will encounter an interesting phenomenon. Tall and modern but derelict buildings. This phenomenon is known as the “ghost towns of China” and is seen throughout the Asian country. These ghost towns have become a new source of investment, but the self-challenge of balancing supply and demand has overshadowed this market. Although these constructions are seen as drivers of economic growth, there are no statistics on the exact number of vacant units in China. According to Business Insider, Li Gan, a professor of economics at the University of Texas and director of the China Financial Survey and Research Center, believes that since there is no clear definition of a “ghost town”, it is impossible to say exactly how many. کرد. Ordos, also known as Kangbashi, is the most famous Chinese ghost town in Inner Mongolia Province. It was supposed to be home to close to one million people in early 2000, but only 300,000 people settled in the city, and in 2016 the population reached 100,000. Earlier this year, China relocated some of China’s top schools to the city, sending many residents to the city, but there are still plenty of vacant homes in the city. Vacant housing units make up a significant portion of China’s real estate market, twice the size of the US housing market, and reached $ 52 trillion in 2019. According to the Wall Street Journal, about 21 percent of homes in China, or 65 million homes, are vacant. With this number of vacant houses, all French citizens can live in vacant houses in China. However, unlike parts of the United States and Japan where vacant homes are located in abandoned areas, vacant homes in China have not been abandoned and are very modern and in good condition but empty. Many believe that “ghost towns” are a unique Chinese phenomenon.

Capitalists instead of first homes

The first thing that can be understood about Chinese ghost towns is that they are not in disarray and, on the contrary, are full of new buildings with suitable infrastructure that have been purchased as investments. The phenomenon is also a sign of a mismatch between supply and demand. The Chinese government, on the other hand, makes a lot of money selling land to contractors and developers; This motivates the government to build independently in high-demand cities and in areas where supply does not match demand, instead of building. The Economist reported earlier in January that China was building about 15 million new homes each year, more than double the number of homes built in the United States and Europe. In addition to the development and increase of supply by the government, the issue of the desire for urbanization also plays a role in this. World Bank data show that more than 61 percent of China’s population lived in cities until last year, up from just 35.8 percent two decades ago. Chinese housing market analysts believe that rising housing prices have stimulated demand for second- and third-class homes as capital for Chinese citizens. “Over the past two decades, housing prices, especially in large cities, have risen several times, but most Chinese people have experienced a significant bubble, as in 2008 in the United States and in Japan in the 1990s,” Xin-Sun argues. They did not. “This has led to the formation of the popular belief that real estate is the best way to maintain and generate wealth. This stimulates the demand for additional property.”

A narrative of the mismatch between supply and demand

Business Insider reports that home ownership rates in China are high, with more than 90 percent of households in the country owning and more than 20 percent owning more than one home. The US interest rate is 65 percent. Real estate accounts for a large portion of Chinese assets; The Chinese invest more than 70% of their assets in real estate. Bernard Au, an economist who studies the Asia-Pacific region, believes that factors such as rising population and slowing population growth in China should be added to the mismatch between supply and demand. China experienced its slowest population growth in 2020 since the 1970s. Under such circumstances, initially, the market was faced with a surplus of supply, which over time turned into empty houses. Overgrand Group, a Chinese construction company, has more than 1,300 contractors in 280 cities in China, providing housing for more than 12 million people. The company owes more than $ 300 billion, making it the most indebted company in the world; Because more than 1.6 million of its apartment units have not been delivered. The company’s projects are implemented in cities (suburbs of ghosts) where there is no demand for housing.

Suppress the market instead of reforming the policy!

There are several solutions to this problem on the policy makers’ table, but each has its advantages and disadvantages. Some believe that by making home sales more difficult, the government can dissuade sellers from selling so that the supply of real estate does not increase further. The government can also change the number of years a citizen can become the absolute owner of a home, or the government will not issue a certificate of sale to the buyer if prices rise too much. It should be noted, however, that the crackdown on home sales hurts those who have to sell their homes to access cash. Real estate is a big part of people’s wealth. If they need this wealth for education, health problems or retirement, they will go for this money. As a result, if prices are suppressed, a large part of the population will suffer. Experts believe that ending government intervention instead of market suppression could solve China’s housing market problem. The right way to regulate the market is to use high-rate property taxes in areas full of vacant homes, which, of course, must go hand in hand with “ending the government’s hidden role in diverting the construction market.”

Source: the world of economy