Soon-to-be-published research will show roughly 22 percent of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That adds up to more than 50 million empty homes, he said.
The nightmare scenario for policy makers is that owners of unoccupied dwellings rush to sell if cracks start appearing in the property market, causing prices to spiral. The latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation -- considered by leaders a key threat to
financial and social stability -- are coming up short.
“There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”
China does not have a property tax so the cost of speculating on property is almost zero. The vast majority of residential units are delivered as empty shells because developers know consumers will want to fit out the apartment to their own specifications. However, that also means there are large numbers of apartment buildings that are vacant and are left to rot because investors are holding them for appreciation purposes rather than ever intending for anyone to live in them.
That represents an eerie parallel with the subprime mortgage crisis. Ahead of the financial crisis CDO’s were packaged to give the illusion of AAA credentials even though the credit worthiness of the underlying loans was questionable to say the least. Today in China the value of many apartment buildings is nowhere near what people spent when they bought off the plans.
That’s a significant issue if availability of credit continues to tighten. Of course the broader point is none of this is new news. The Chinese are more than aware of the issue which gives them all the most incentive to ensure the system persists. The argument for stimulus after a year and more of tightening is becoming increasingly convincing.Back to top