Fear empty flats in China's property bubble

MarketWatch ^ | Aug. 3, 2010, 8:30 p.m. EDT | Andy Xie

[Ernest_at_the_Beach]

Commentary: Even worse than price bubble is quantity bubble of vacant flats

BEIJING (Caixin Online) -- How many flats in China are sitting empty? The media recently floated a story -- denied by power companies -- that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people.

Statistical transparency is lacking in this area, so the truth about empty apartments remains under wraps. Publishing accurate data should be of the highest priority, since the size of the nation's unused apartment stock is perhaps the most important measure of the extent and seriousness of China's property-market bubble. Indeed, it's a grave concern for policy making, since unpublished data may indicate not only a price bubble but a quantity bubble burdening the market.

Real estate is prone to price bubbles because unique factors restrict its supply response. Inflated prices have been the mark of most modern-day property bubbles. Price bubbles occur frequently and can last a long time.

In the 1980s, Tokyo saw a tremendous rise in property prices not in tandem with supply. The Hong Kong property market experienced a similar phenomenon in the 1990s.

One reason for limited supply is that property development is subject to government regulations, especially local rules. Established communities usually restrict building heights and density, for example, making it virtually impossible for mature communities to increase supply quickly. London, which is now experiencing a price bubble, and Tokyo in the past are cities that tightly control building heights.

[lurk]

64.5 million empty living spaces.

Hmm. That’s not far from the number of people Mao killed during his glorious reign.

[VegasCowboy]

Wow. The sound of that bubble popping is going to shake the windows here in America.

[PGR88]

Sounds bad, and in a free-market it would be (and it would never have been allowed to get so high)

But in China, the Gov’t owns the banks. No one knows how much bad debt they have. The banks can just sit on it forever and get cash injections from the bank (just like TARP!). Capital controls are closed, so no will crash the RMB and money won’t be allowed to leave (at least not quickly)

So rather than burst/crash, they will go through a decades-long, slow unwinding, just like Japan and their property debt bubble.

[ScottinSacto]

I thought I read on one of these stories...like the humongous malls and entire cities that are vacant over there, that GDP is tied to the money spent on the construction. So build a lot of what no one can afford or want and you prop up the GDP and look like you are going strong? That is one big bubble over there.

[Plutarch]

China's Empty City

This piece is very good, and from AlJazeera. I don't know what it means that to get good reporting on China, you have to turn to AlJazeera.

[UCFRoadWarrior]

How’s that Free Trade with COMMUNIST China working now?

I wonder what excuse the Free Trade COMMUNISTS will use now? Blame it on Smoot HAwley? I am sure the Anti-American Free Traders will come up with something

[AdmSmith]

If the figures in the article is correct we can expect a crash in China. That will propagate outside China, add the tax increase Jan 1, 2011 by Obama and we will have serious problems.

[TopQuark]

"Quantity bubble."

The author assumes that the use of the "bubble" instead of "oversupply" makes him think knowledgeable. There is no such thing as a quantity bubble. The author illustrates the fact that one typically applies to a journalism school only after all other graduate schools have rejected the application.

[TopQuark]

"Real estate is prone to price bubbles because unique factors restrict its supply response. "

Both parts are factually incorrect. With the exception of the recent bubble, there are no price run-ups on record that qualify as bubble.

He also suggests, incorrectly, that every inflation is a bubble. What has attracted your attention to this cr-p? The author presents no new factual information, referring only to a "floated" media articles, and no economic analysis. What he does say is completely incorrect and grossly misleading (as is common on MarketWatch). What has attracted your attention to this article?

[AdmSmith]

Here is an economic analysis:
China’s property bubble
Takatoshi Ito 15 April 2010

One objection to the calls for China to let its currency appreciate argues that the yen’s appreciation during the 1980s was a cause of Japan’s “lost decade”. This column instead blames policymakers for not dealing with Japan’s property bubble early enough. China should learn from these mistakes with its own property bubble and let the renminbi appreciate.
http://www.voxeu.org/index.php?q=node/4885

[LomanBill]

[So build a lot of what no one can afford or want and you prop up the GDP and look like you are going strong?]

That ponzi scheme isn’t limited to “over there”. Cities in the U.S. have gotten themselves into a big over-developed mess too.

[TopQuark]

Nice article; thank you very much.

[Publius6961]

Who writes this crap?
Panic based on electric meters registering zero?

Bypass the meter.
If construction is adequate and the weather mild enough, electricity can be dispensed with altogether. We are taling about a population, a large portion of which is accustomed for thousands of years to live primitively.
Chickens and campfires in high rises...

[SunkenCiv]

Thanks AdmSmith! Doesn't this have something to do with Chinese apartment buildings tipping over? ;')

And thanks Ernest_at_the_Beach for this one:

• And now, the main event -- inflation vs. deflation

[blam]

[blam]

China Shows How To Do A Stress Test: Tells Banks To Imagine 60% Property Collapse

" China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said."

[Ernest_at_the_Beach]

I think I saw that as a consequence of that big earthquake....or was that a different building.?

[Ernest_at_the_Beach]

This:

that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people.

Yet watching CNBC on occasion all you hear is that China is going to be the locomotive for the world economy because we and Europe have problems...invest in China...is the mantra.

[blam]

" I think I saw that as a consequence of that big earthquake....or was that a different building.? "

No earthquake...shoddy construction:

Nearly Finished Apartment Building Falls Over In China