The industry that has traditionally powered about a quarter of GDP has been in a downward spiral that policymakers have struggled to halt

The industry that has traditionally powered about a quarter of GDP has been in a downward spiral that policymakers have struggled to halt

All across China, from Beijing in the north, to Shenzhen in the south, millions of newly built homes stand empty and unwanted. There were nearly 391m sq metres of unsold residential property in China as of April, according to the National Bureau of Statistics. That is the equivalent of Manchester and Birmingham combined – and then some – sitting as vacant, unwanted property.

This glut of idle property has caused a headache for the government, shaken the world’s second largest economy and raised tensions over the purpose of housebuilding in a nation where property investment had been viewed as a safe bet.

Since the real estate sector was sent into a tailspin in 2020, caused by the pandemic and a sudden regulatory crackdown, the industry that has traditionally powered about one-quarter of GDP has been in a downward spiral that policymakers have struggled to halt.

The crux of the problem is that, with shaky faith in the economy and big property developers failing to deliver on paid-for apartments, potential homebuyers are keeping their money out of the market.

  • TranscendentalEmpire@lemm.eeEnglish
    244·
    6 months ago

    Ehhh, you would think that. However, China currently has more housing than people. I think at the moment the excess housing in the country could home an extra 150m people.

    You can knock them for ignoring basic fundamental economic ideas like supply and demand, but it’s not like they have a large homeless population being unsheltered.

    • zephyreksEnglish
      135·
      6 months ago

      This is, again, just a plainly incorrect take. Basically everyone in China is housed, yes, but a vast proportion of them still live in rural villages. The rural-to-urban transition does need to be planned for, and it’s been a huge factor in China’s real estate market. China’s urbanization rate today is 66%, compared to 75% in Russia and 83% in the US.

      • TranscendentalEmpire@lemm.eeEnglish
        91·
        6 months ago

        I don’t really see how your rebuttal conflicts with what I said? Unless you are claiming that developers were building housing for an eventual urbanization project that’s going to migrate 150m people to cities within the next year or two…

        These are still real estate companies we’re talking about. They aren’t wanting to be left holding the bag for years while their investment properties dry rot from prolonged vacancies.

        • zephyreksEnglish
          33·
          6 months ago

          Urbanization is expected to hit 75% by 2030… This is analysis corroborated by Morgan Stanley and others, so, unironically, yes.

          • TranscendentalEmpire@lemm.eeEnglish
            71·
            6 months ago

            That’s still a bit of a long time for developers to have their money wrapped up in empty apartment complexes. Large buildings like that can start having major issues after months of vacancies, let alone years.

            I think it’s still more likely that developers’production exceeded immediate demand than it is for them to have planned for them to be vacant for years.

            Either way, it’s still not an economically sound idea. I think if they had planned for this, it wouldn’t have hit the real estate market as hard as it has.

            • zephyreksEnglish
              42·
              6 months ago

              Basically, government officials knew that at some point they needed to aggressively overbuild real estate capacity in order to meet the urbanization demands. I think they predicted an incorrect curve: whereas they perhaps anticipated that urbanization would follow a trend more like Korea (74% at a similar stage in their urbanization trajectory), instead China is following a curve similar to Taiwan (~66%). A mistake in policy, yes, but it has localized effects.

              Plus, I think you’re missing a far more essential point: China doesn’t give a fuck if every real estate developer goes bankrupt. That’s just a cost of doing business. Instead, China’s just swooping in and buying up distressed assets to turn into public housing. Homeowners aren’t left holding the bag: developers are.

              • TranscendentalEmpire@lemm.eeEnglish
                71·
                6 months ago

                Plus, I think you’re missing a far more essential point: China doesn’t give a fuck if every real estate developer goes bankrupt.

                Just because they operate a mixed economy doesn’t mean they can ignore material realities. Investments going unrealized arguably have more negative outcomes for more socialized markets.

                Instead, China’s just swooping in and buying up distressed assets to turn into public housing. Homeowners aren’t left holding the bag: developers are.

                You can’t wring blood from a stone. Its not like it’s just the developers cash being used to build the housing, there are subsidies and investments from banks, which are owned by the government. So if a project goes under, the best case scenario is that they buy it back to get some return on investment, but that’s still robbing peter to pay peter. It’s just not sustainable, especially if you aren’t making wind on your other plans like urbanization.

                • zephyreksEnglish
                  22·
                  6 months ago

                  China has seen the hottest real estate market it’s ever seen. How many subsidies were banks handing out?

                  • TranscendentalEmpire@lemm.eeEnglish
                    2·
                    6 months ago

                    It kinda depends on what you consider to be a subsidy, but China has made significant investments into the housing sector to achieve “the hottest real estate market it’s ever seen”.

                    The biggest of these are in their policy surrounding land management. This allows corporations to skip through some of the most expensive and time consuming aspects of land development. I actually think this is extremely beneficial if utilized correctly, and we in the west should learn to implement it to some degree.

                    However, if it’s utilized to build way more housing than necessary, then the land development policy isn’t making any returns for their investment. The significant amount of resources, land, and political capital could have been utilized for something they actually need.

                    The second big one is subsidizing low income housing programs. Yes, they are turning some of this excess housing to more affordable living spaces. However they are doing this by having local governments purchase them with money borrowed from the central bank. It is just robbing Peter to pay Paul, and does not mean the central bank made any return on the money they originally lent to developers.

                    Which returns us to the largest problem with the market, the central bank lent out too much money to developers, whom utilized that to build an excessive amount of housing. Banks are supposed to evaluate things like roi and supply and demand to make sure borrowers aren’t over leveraged to the point where they cannot realize a return on investment. However, if that risk assessment conflicts with set policy in a planned economy, then there’s a risk that banks will forgo the vetting process to appease policy makers.