What’s Happening with China’s Real Estate Market?
One of the world’s biggest economies is facing a potential crisis in the real estate market. What exactly is happening and how do China’s famous ‘Ghost Cities’ factor in?
China’s ‘Ghost Cities’
Intended for millions of residents, China’s ‘Ghost Cities’ are housing about 10% of that, creating blocks and blocks of unoccupied high rises.
Real estate has always been a reliable part of China’s economy, but now China has an unknown amount of these ghost towns with enough empty units to house the population of France, a large portion of these ghost buildings account for why China’s real estate market is double that of the US and worth $52 trillion as of 2019.
China now has 65 million empty units whether it’s because there’s no demand, the prices are too high, or because China overestimated its urbanization rates.
Why it’s a Problem for China’s Real Estate Market
Why is this a problem? Because China invests so much into housing each year, nearly five times as many as the US and Europe combined. Each empty unit represents a failed investment that the government makes with developers that isn’t paying dividends.
That’s why Chinese real estate giant Evergrande is $300 billion in debt and China could have a hefty real estate problem on its hands with a potential real estate bubble ready to pop, something that could greatly impact the economy of the country.
According to Bloomberg, any instability in the real estate market could cause a mass selling of people’s second homes, sending prices spiraling. But one might wonder why that’s not already happening and the answer is that China isn’t letting it by making home selling increasingly difficult.
“China can stop a transaction. The government can change the number of years you have to own a home. Or if prices are too low, the government won’t give you a certificate of sale,” said Director of the Research Center for Chinese Household Finance at Chengdu’s Southwestern University of Finance and Economics, Li Gan to Insider.com.
What Happens Next for China?
China has the advantage of having more control over the market and as stated above, they’re looking for ways to keep the market from collapsing in on itself by limiting sales and price increases. What happens next is something we’ve never seen before, and the eyes of the global economy are watching.
For questions regarding real estate law, schedule a consultation with the attorney at Lee Scott Perres, P.C.
