China's looming property bubble

Relocations from the 3GD greatly exceeded the original 1.3 million estimates. Poor soils and collapsing reservoir shorelines forced further relocations, many up to three times. The latest relocations total 300,000. US$7.03 billion of stimulus funds will move another 330,000 people from Henan and Hubei under the latest SNWDP relocations.

The second is not low cost, but more the executive and luxury apartments for Han Chinese entrepreneurs, business executives and professionals drawn to, or assigned to work in the ethnic sensitive regions of Tibet and Xinjiang to reduce the ethnic minority.

The third is a Beijing priority for Tibet and Xinjiang. The strategy is to relocate Tibetan nomad communities from traditional lands designated for resource, agricultural, industrial and infrastructure development, as well as Tibetan urban communities from city growth areas to dispersed relocation sites. Both strategies mean they can be easily monitored and controlled.

In Xinjiang, entire Uighur communities were forcibly removed from the old town that is now prime city real estate and relocated to isolated outer urban ghettos of hastily built tower blocks that are already showing signs of deterioration. Activities in these tower blocks are easier to monitor and control than the old narrow alleyways of the old town.

Low cost housing is not only about fulfilling the desire for a home for the low income Chinese. It is also about control of ethnic populations and protecting the CCP from criticism and separatism and boosting housing statistics.

Local government gone mad

Because of the manner in which China calculates its GDP, local governments construct grandiose mega projects to boost local GDP, regardless of potential for success. New Ordos City is just one example.

This gleaming new palatial seat of power of grand structures house the local government, CP headquarters and Grand Khan Square in landscaped parklands less than two kilometres south from old Ordos City, reached by high speed freeway. Palatial office blocks and thousands of luxury villas, apartments and leisure facilities in a landscaped countryside have also been constructed to meet the needs of the private sector.

Designed for a population of 1.3 million, the assumption is that luxury and extravagance will attract the wealthy corporate elite and entrepreneurs to live in luxury in this desert land of opportunity alongside the new centre of power in Inner Mongolia.

While workers are bussed in and out to the busy government sector every day, the same energy and dynamism is missing in the private sectors. Few occupants live in these forests of silent monuments to luxury private desert living. Despite this, construction continues, adding more accommodation and facilities every day while existing, unoccupied facilities deteriorate.

Ordos is in a billion-dollar cleft stick standing in line for occupants like Dubai’s Burj Khalifa, Astana, New Songdo City, and the tens of square kilometres of floor space in the gleaming empty, or near empty towers of Beijing and Shanghai.

Abandoning construction is not an option, since it would acknowledge failed policy, oversupply, and unrealistic prices. Lowering prices will push values below realisable levels, triggering a chain reaction that could engulf not only the developers and tenants, but also the banks and local government itself.

What of 2010

Inspecting Beijing and Shanghai apartments and office space reveals the sheer extent of vacant buildings, floor space, and that in turn, indicates massive outstanding debt that is accruing servicing and maintenance charges. Time spent checking Beijing hotels reveals serious oversupply and low average occupancy rates, reducing debt recovery dating back to pre Olympics.