China’s ghost cities wait­ing

Although there are mil­lions of un­oc­cu­pied homes across China, these places are not the ur­ban waste­lands they are posited to be

The Witness - - FEATURES - WADE SHEP­ARD — Reuters. • Wade Shep­ard is the au­thor of Ghost Cities of China.

NEARLY 150 000 Syr­ian refugees have al­ready claimed asy­lum in Europe and tens of thou­sands more are flood­ing the borders in search of places to live. Mean­while, in China, there are myr­iad new apart­ments sit­ting com­pletely empty and en­tire sec­tions of freshly con­structed cities that are vir­tu­ally un­in­hab­ited.

This dis­par­ity be­tween un­met hous­ing need and over­sup­ply has not been lost on many around the world, and af­ter writ­ing a book about China’s ghost cities, I’ve re­cently found my e­mail in­box get­ting flooded with sug­ges­tions such as this: “Do you think the ghost cities could be used, even as a tem­po­rary sit­u­a­tion, to ac­com­mo­date those dis­placed from Syria? It seems that many of the cities are just wait­ing for a com­mu­nity and here is a com­mu­nity that needs a city.”

This sen­ti­ment is wide­spread across pop­u­lar so­cial­media plat­forms.

Re­al­is­ti­cally speak­ing, this sug­ges­tion is not worth analysing with much depth. The po­lit­i­cal quag­mire of re­lo­cat­ing masses of peo­ple across the planet — not to men­tion the fact that refugees need more than just hous­ing — means that this is a far greater or­deal than sim­ply as­suag­ing de­mand with sup­ply. It does shed light, though, on the gulf that ex­ists be­tween the pre­dom­i­nant in­ter­na­tional opin­ion on China’s so­called ghost cities and their present re­al­ity.

Even though there are be­tween 20 mil­lion and 45 mil­lion un­oc­cu­pied homes across China, these places are not the ur­ban waste­lands they are of­ten posited to be. While many of China’s new cities and ur­ban dis­tricts are de­fi­cient in peo­ple, they are not de­fi­cient in own­ers. Nearly ev­ery apart­ment that goes on the mar­ket in China is quickly pur­chased, of­ten at ex­or­bi­tant prices that com­monly range into the hun­dreds of thou­sands of dol­lars. Far from be­ing un­wanted in­fra­struc­ture that could be doled out seam­lessly to refugees, those ar­rays of va­cant high­rises are ac­tu­ally the proud pos­ses­sions of peo­ple who paid a lot of money for them.

So why would any­one spend in­cred­i­ble amounts of cash on houses they do not in­tent to use?

All over the world, the value of prop­erty ex­tends be­yond the util­i­tar­ian func­tion of be­ing a place to live. Real es­tate is also a vi­tal eco­nomic en­tity that presents an av­enue for in­vest­ment as well as a way of stor­ing wealth — a use of prop­erty that is taken to the ex­treme in China. “Many Chi­nese in­vestors are buy­ing prop­erty based on ex­pec­ta­tions of ap­pre­ci­a­tion, and that it is a solid, safe in­vest­ment that they can easily un­der­stand,” said Mark Tan­ner, the found­ing di­rec­tor of China Skinny, a Shang­haibased mar­ket­ing­re­search firm.

A full 39% of in­di­vid­ual wealth in China is kept in hous­ing, and, ac­cord­ing to No­mura, 21% of China’s ur­ban house­holds pos­sess more than one home. The rea­sons for this de­sire to in­vest in hous­ing of­ten re­sults from a lack of bet­ter op­tions. China’s banks pay neg­ ative in­ter­est and are be­com­ing even more unattrac­tive with the re­cent wave of cur­rency de­val­u­a­tion. Wealth­man­age­ment prod­ucts are not fully de­vel­oped and are highly reg­u­lated by the gov­ern­ment, and the stock mar­ket is viewed to be about as se­cure as a casino.

A huge por­tion of the homes that are pur­chased in China func­tion very much like stocks or a trad­able com­mod­ity. As an in­cred­i­ble num­ber of new apart­ments are sold as un­fin­ished con­crete cav­i­ties with­out any in­te­rior fit out or even win­dows, they are in no way im­me­di­ately liv­able. Strange as it may seem, they are very ac­tively bought and sold in this bare­bones form. In fact, in­vestors of­ten pre­fer them that way. In many ways, they are purely eco­nomic en­ti­ties, quan­tifi­able place­hold­ers of value that are traded on the open mar­ket akin to pre­cious met­als. Just as one doesn’t need to mould a piece of gold into some­thing us­able, like a piece of jew­ellery, for it to have value and an eco­nomic func­tion, an apart­ment in China doesn’t need to have peo­ple liv­ing in it for it to be eco­nom­i­cally vi­able.

“Empty units leave flex­i­bil­ity for quick sales in a chang­ing mar­ket or the need to cash in quickly,” said Barry Wil­son, the found­ing di­rec­tor of Barry Wil­son Pro­ject Ini­tia­tives, a Hong Kong­

“A huge por­tion of the homes that are pur­chased in China func­tion very much like stocks or a trade­able com­mod­ity. As an in­cred­i­ble num­ber of new apart­ments are sold as un­fin­ished con­crete cav­i­ties with­out any in­te­rior fit out or even win­dows, they are in no way im­me­di­ately liv­able.”

based ur­ban­de­sign firm.

Another rea­son for the sheer num­ber of un­used apart­ments in China is the fact that there is of­ten lit­tle fi­nan­cial in­cen­tive for own­ers to do any­thing with them af­ter pur­chase. There is no yearly prop­erty tax in China, so va­cant prop­er­ties are not a fi­nan­cial drain on their own­ers and the po­ten­tial re­turns that could be had from rent­ing them out (one per­cent or so) are of­ten not worth the has­sle, es­pe­cially be­cause it costs tens of thou­sands of dol­lars to con­struct the in­te­ri­ors of new apart­ments in prepa­ra­tion for ten­ants. This is com­bined with the fact that Chi­nese home­own­ers, es­pe­cially in­vestors who have mul­ti­ple prop­er­ties, are re­mark­ably un­lever­aged. Ac­cord­ing to Mark Tan­ner, over 80% of homes in China are owned out­right. This means that most home­own­ers gen­er­ally don’t have any mort­gages to pay off or any other loans, so there isn’t as much fi­nan­cial pres­sure to make a profit from these homes in the short term.

Ad­di­tion­ally, many empty apart­ments have own­ers who in­tend to oc­cupy them at some point. A huge num­ber of China’s new apart­ments are lo­cated in new de­vel­op­ment ar­eas. The think­ing is if you buy prop­erty in these emerg­ing new ar­eas early, you can get a bet­ter price.

So it’s com­mon for peo­ple to pur­chase homes in places that are not yet ready to sup­port a large pop­u­la­tion, with the un­der­stand­ing that they won’t be able to in­habit them for many years. As these new ur­ban de­vel­op­ments grow and evolve, more peo­ple even­tu­ally move into their homes. As new ar­eas de­velop, so do the fa­cil­i­ties, in­sti­tu­tions, in­fra­struc­ture and busi­nesses that need to be at­trac­tive to res­i­dents, and va­cant homes be­gin fill­ing up as ghost cities come alive.

So, while China may have tens of mil­lions of empty apart­ments, it doesn’t mean that they don’t serve an eco­nomic func­tion, it doesn’t mean that they are un­wanted, and it def­i­nitely doesn’t mean that they are just ly­ing in some ur­ban no­man’s land ripe for the tak­ing.

PHOTO: SUPPLIED

There’s a wide­spread sen­iti­ment across so­cial media that China’s ghost cities could of­fer a so­lu­tion to Europe’s mi­grant cri­sis.

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