China's "ghost cities" may be a lot less ghostly than previously thought.
The phenomenon of eerie shopping malls and completed apartment blocks completely devoid of stirrings of Chinese life has been well-documented in Western media in recent years, from video segments to photo series and more.
But according to CLSA analyst Nicole Wong, those reports might be missing the forest for the trees-or in this case, missing the people for their timing. Ms. Wong, who recently returned from a tour of 137 projects in three Chinese cities often cited for their ghostly developments, says that the presence of empty apartments is thanks to some unusual quirks of China's real-estate landscape.
Specifically, she noted at Tuesday's CLSA Asia-Pacific Markets Investors' Forum in Hong Kong, new Chinese apartments are typically sold as virtual concrete shells that buyers must outfit, installing everything from showers to flooring to kitchen sinks to make them move-in ready. Accordingly, Ms. Wong notes, many such "ghost" developments take awhile to gain traction-especially as it's often the sale of the land they're sitting on that allows the city to fund subsequent facilities and transportation links that will eventually help make them mature neighborhoods.
"When buildings are first completed they are actually not that habitable, so it takes a long time before most people want to move in," Ms. Wong said.
In a report on her findings, Ms. Wong notes that buildings completed between 2008-11 in Zhengzhou, Ordos and Wenzhou-often cited as instances of an overly frothy property market-have typically seen tenants move in over a three-year period. Among such buildings, Ms. Wong's survey found an average of 48% take-up in the first 12-18 months, another 19% in the next year, and then yet another 15% in the year after that. Such a delay, she says, can be attributed to the fact that residents need time not only to fully outfit their units, but many also like to wait until their neighbors have done so as well to avoid moving in before the dust clouds and drilling sounds have subsided
David Fuller's view This is interesting and I would welcome feedback from subscribers who have visited any of these 'ghost cities' over the last year.
China's Shanghai Composite Index (monthly & daily) continues to look like a medium to longer-term recovery candidate to me.