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The area that my wife decided we needed to buy a flat in, in Foshan, near Guangzhou, was basically a farming community with some old villages and a pagoda when we first saw it three and a half years ago. Our complex with one of the first couple places built. I was never really into buying it here because it's so far out from anything we have to do with, no expat community, etc, but she insisted she needed to own property before 30 so here we are.
We moved here last fall so we wouldn't have to rent a place before moving to the US. The complex was 100% full before it opened but is still currently less than 30% occupied; lots of people, like us, bought it because of the traditional/familial need to own property, or because of the school situation (it can be very difficult to send your kid to school in a major city; indeed, owning a house here no longer guarantees the right to go to school all the same, though we were lucky and got in before then), or based on speculation for the future.
The entire area behind is is being developed and more places are being built. There's a mall that's now mostly occupied. They are building a metro station just behind us that will eventually connect to downtown GZ, and that added like 30% value to our place overnight.
A lot of the ghost towns are indeed speculative, but after a few years they fill up. It's not quite like other places where new properties in developments are built to order as interest grows. They tend to get big subsidies from provincial and local governments - in some cases at the national level - as the construction process provides jobs, and the time after completion fuels a boom in the purchase of appliances, furniture, and hardware in the area.
I think we will see this start to slow down in the coming years due to market saturation and the declining birthrate.
I agree with everything you said, except for one point that I was trying to make that you are missing. I described the housing purchases as commodities specifically because commodities are bought and sold for their intrinsic value and not for any performance or function. And that's how Chinese with disposable wealth buy houses. To leave them empty and either profit on future appreciation or simply to store savings somewhere that they feel will not lose all its value. It stems to some degree from a distrust of govt, and sure purchasing real estate in China while not ideal is a step up from stocks or accounts that can be seized. This is why you have so many vacant investment homes in Vancouver or California purchased by wealthy Chinese.
The vacant homes that I mentioned some of our relatives own are intentionally vacant as they feel having someone live there lowers the value. This citylab article from Feb 2019 says that there are "tens of millions" of these "ghost apartments" that are purchased as future wedding gifts for example, or by speculators seeking to hold for profit.
But unsold properties aren’t the only problem. There are also tens of millions of units that have been bought—often by entrepreneurs and speculators who have no intention of living in them or renting them out. Some are bought as vacation homes or for single male family members, as it’s traditional for grooms to gift their brides an apartment. But in many cases, buyers hold on to them as investment property, with the hope of eventually selling them for a profit. Kaiji Chen, an economist at Emory University who studies China’s housing market, calls them “ghost apartments.”
The area that my wife decided we needed to buy a flat in, in Foshan, near Guangzhou, was basically a farming community with some old villages and a pagoda when we first saw it three and a half years ago. Our complex with one of the first couple places built. I was never really into buying it here because it's so far out from anything we have to do with, no expat community, etc, but she insisted she needed to own property before 30 so here we are.
We moved here last fall so we wouldn't have to rent a place before moving to the US. The complex was 100% full before it opened but is still currently less than 30% occupied; lots of people, like us, bought it because of the traditional/familial need to own property, or because of the school situation (it can be very difficult to send your kid to school in a major city; indeed, owning a house here no longer guarantees the right to go to school all the same, though we were lucky and got in before then), or based on speculation for the future.
The entire area behind is is being developed and more places are being built. There's a mall that's now mostly occupied. They are building a metro station just behind us that will eventually connect to downtown GZ, and that added like 30% value to our place overnight.
A lot of the ghost towns are indeed speculative, but after a few years they fill up. It's not quite like other places where new properties in developments are built to order as interest grows. They tend to get big subsidies from provincial and local governments - in some cases at the national level - as the construction process provides jobs, and the time after completion fuels a boom in the purchase of appliances, furniture, and hardware in the area.
I think we will see this start to slow down in the coming years due to market saturation and the declining birthrate.
Yep, that's what I'm expecting as well.
As for Foshan, I was looking at the Hyatt footprint when we visited Guangzhou in 2019 (I'm a Hyatt loyalist) and it was odd to see a Hyatt Place in Foshan. Was very good value comparatively and so I had to dive into why people would go there lol. Ended up getting the impression that you just described.
As for Foshan, I was looking at the Hyatt footprint when we visited Guangzhou in 2019 (I'm a Hyatt loyalist) and it was odd to see a Hyatt Place in Foshan. Was very good value comparatively and so I had to dive into why people would go there lol. Ended up getting the impression that you just described.
Funny you mention that - we stayed at that Hyatt once, for the same reason... I used to work for them, and we are members of their reward program and have club access. Definitely totally out of place. There's a Hampton Inn and a couple other global brands in our general area and from what we've gathered, they are never anything close to full and are propped up by any combination of developers and the city to give the area some panache and clout.
There were some hotels in areas like Yuexiu in GZ that at one point were an Omni, Doubletree, etc but after a few years, they closed and sold the space to a local hotel chain. Sometimes you can still see signage etc.
I agree with everything you said, except for one point that I was trying to make that you are missing. I described the housing purchases as commodities specifically because commodities are bought and sold for their intrinsic value and not for any performance or function. And that's how Chinese with disposable wealth buy houses. To leave them empty and either profit on future appreciation or simply to store savings somewhere that they feel will not lose all its value. It stems to some degree from a distrust of govt, and sure purchasing real estate in China while not ideal is a step up from stocks or accounts that can be seized. This is why you have so many vacant investment homes in Vancouver or California purchased by wealthy Chinese.
The vacant homes that I mentioned some of our relatives own are intentionally vacant as they feel having someone live there lowers the value. This citylab article from Feb 2019 says that there are "tens of millions" of these "ghost apartments" that are purchased as future wedding gifts for example, or by speculators seeking to hold for profit.
Yeah, this is true, and where I think some of the understanding of the "ghost city" name breaks down on either side.
Like with our complex: 100% owned, 30% occupied. The more pro-China elements are going to latch onto the former, the more anti-China elements the latter. Many developers don't even really plan for places to be 100% full and so don't build enough parking... There are three schools which were built alongside complexes per government mandates, which are sitting vacant because those complexes are nearly empty and there are no kids to go there, even though the complex is sold out.
The reality is that there's a good chance they are mostly or all bought, but won't be occupied for a very long time, or perhaps ever. Our floor is half occupied. The two floors below us are vacant (one of my wife's friends bought the place immediately under us. It's fully furnished but they've never spent a night there). We are moving back to the US tomorrow; after paying down most of our mortgage, our monthly payment is only a few hundred less than what we would make renting it out, and it's filled with new furniture... My wife is worried that if we rent it out, the tenants will wear the place down and it will lose value, so, it's going to sit vacant until we are back for vacation. I'm hoping it will accrue enough value over the coming years to justify selling it for even a meager profit.
I agree with everything you said, except for one point that I was trying to make that you are missing. I described the housing purchases as commodities specifically because commodities are bought and sold for their intrinsic value and not for any performance or function. And that's how Chinese with disposable wealth buy houses. To leave them empty and either profit on future appreciation or simply to store savings somewhere that they feel will not lose all its value. It stems to some degree from a distrust of govt, and sure purchasing real estate in China while not ideal is a step up from stocks or accounts that can be seized. This is why you have so many vacant investment homes in Vancouver or California purchased by wealthy Chinese.
The vacant homes that I mentioned some of our relatives own are intentionally vacant as they feel having someone live there lowers the value. This citylab article from Feb 2019 says that there are "tens of millions" of these "ghost apartments" that are purchased as future wedding gifts for example, or by speculators seeking to hold for profit.
Homes used as investment commodities only provide a ROI if someone is willing - and able - to pay the requested rent or price. You will eventually have to sell that empty house/apartment (correct me if I’m wrong but I don’t believe China allows the passage of property through inheritance.)
In China, this largely dependent on organic socioeconomic growth and mobility of the masses through trickle up growth, from peasant through to strong middle class (lower, middle, and upper). Which in turn is dependent on many factors, including government policies that enables true organic internal growth (not propped up bubbles), as well as external investment built on trust (low corruption). Taking into account its demographics, where does China stand on this in the long term?
As for foreign money buying up properties (especially homes) as investment commodities in the US (thus artificially inflating home prices), those empty homes will only provide ROI provided the US continues being a relatively stable society/government with good SES mobility compared to the rest of the world. (But it’s already creating the beginnings of serious social and economic problems in certain markets. Time will tell as to the degree to which it will grow and impact the rest of the country)
Let’s remember what happened to the landlord class in every communist revolution.
Like with our complex: 100% owned, 30% occupied. The more pro-China elements are going to latch onto the former, the more anti-China elements the latter.
I actually think it is worse to have 30% occupied but 100% owned. If the properties didn't get sold, then they would stop building apartments that no one lives in.
But since people are buying them, then the vacancy rate will keep increasing as people accumulate properties for investment purposes. Property prices do not increase forever, and when people realize that the property prices are going down, then there is a lot of investment properties that can be sold.
Quote:
Originally Posted by 415_s2k
The reality is that there's a good chance they are mostly or all bought, but won't be occupied for a very long time, or perhaps ever. Our floor is half occupied. The two floors below us are vacant (one of my wife's friends bought the place immediately under us. It's fully furnished but they've never spent a night there). We are moving back to the US tomorrow; after paying down most of our mortgage, our monthly payment is only a few hundred less than what we would make renting it out, and it's filled with new furniture... My wife is worried that if we rent it out, the tenants will wear the place down and it will lose value, so, it's going to sit vacant until we are back for vacation. I'm hoping it will accrue enough value over the coming years to justify selling it for even a meager profit.
Even if you don't rent it out, in 10 years your new furniture is going to be worthless. The paint will fall of the walls, the walls will crack, your applicances will rust and the apartment will be covered with dust. No one is going to want that in 10 years, and will have to tear down everything. And if you don't plan to wait 10 or more years, then why wait at all?
Economically speaking, properties are depreciating assets, especially in China. The decline of properties is not properly priced in today because the government used to buy up old apartments and build tall buildings for profit. They have mostly stopped doing that, and unmaintained properties will decline in value over time. In addition, property prices are at a very high level, and is likely to go down. In some places in China, it has already started to decline. They are also planning a property tax, which will decrease the value of your property and increase the cost of holding the apartment.
If you keep this apartment, then you are likely to lose a lot of money. Just sell it and invest the money in the US instead. However be careful what you invest in, the US is also in a big bubble.
China had planned the new cities along with the development of high speed rail. They're observing the growth in population in these cities, especially around the downtown rail stations. It's not unlike what's being done in the US. The commercial developers are balking at building office complexes first as demanded by the planners since they require retail and other amenities to build out in response to demand.
The Chinese government takes such a long view, but it took about 30 to 40 years for most of the parcels around the DC Metro stations to be consolidated and developed. They're expecting the same with the projects around the new Loudoun County stations.
Properties are much more pricey in cities with large number of incoming migrants and can be dirt cheap in areas of China with few economic opportunities. Rooms in urban slums are pricey in China because of the large demand. When people can't survive, they move to better places, keeping the property prices up in their destinations.
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