Shenzhen's never-ending skyscraper boom
edition.cnn.com
edition.cnn.com
There are currently a host of half-finished huge buildings that are not being completed. For instance, I can see a bunch from my window. This is most likely due to lapsed demand and reduced speculative investment in the sector.
This is really just a delayed adjustment along the lines of an established national change, Shenzhen possibly encountered the slowdown later owing to increased expectations/hype/financing availability and special economic and political darling status.
I would say from physical observation that the second half of last year was the real slow down, things haven't changed much since then.
The local real estate market is pretty expensive... a lot of people who bought apartments 10 years ago are now USD multi-millionaires, despite having real incomes as low as 1-2000USD/month. As a consequence of consistent price growth, purchasing a small apartment now costs about the same as Sydney, with a median price above USD$1M. It is fairly difficult to rent a halfway decent apartment under about 6000CNY (~1000USD)/month, many pay double that or more.
I'm guessing that $10K is supposed to be $1K US? Paying double that or more would put on par with places like NYC as well.
Is none of that new real estate for the rental market then? Usually when the demand dries up for purchase developers will put them on the market as rentals so they are at least generating income. I'm guessing this maybe just hasn't happened yet? Or maybe all those high rises are mostly commercial?
"The United Nations Population Division projects world population to peak at over 10 billion at the end of the 21st century, but Sanjeev Sanyal has argued that global fertility will fall below the replacement rate in the 2020s and that world population will peak below 9 billion by 2050, followed by a long decline. A 2014 study in Science concludes that the global population will reach 11 billion by 2100, with a 70% chance of continued growth into the 22nd century."
So clearly there is disagreement between those two. Using the 2014 study, there would be an increase in the current population(~7 billion) by greater than 50% and continued growth for another centruy.
The problem is, there are no buyers. The apartments are priced at $1M on paper, but there are no buyers.
I wonder what will happen once the bubble collapses.
A good brand new apartment in a decent part of Gurgaon, India, will set you back by at least $800+/month
I'm not sure if India has a similar problem.
I have two personal example. Despite my reasonable arguments my family invested close to 1 crore (10 million) Indian rupees in property for a meager 3% per annum returns in rental income. I feel the pinch because a significant part of it is my hard earned money. Sometimes you just can't help it.
Then there is a friend who is buying another flat because he has accumulated some money by living outside India. He thinks he will sell it at a higher price in couple of years.
Any evidence based arguments about history of real estates failures are simply ignored. Everybody thinks this India is different.
Reason just fails when competition between neighbours takes over to hoard more and more.
Indian here, real estate and gold are considered safe investments in India. Bonds and stock market are considered as casinos.
Which is correct, except that with bonds and stocks you win on average, while in a casino you lose on average. This equivalence of risk=losing with no regard for expected return is pretty common in many countries. I wonder why that is? A history of scams?
I actually I think we invented this stuff.
PS: 3% return p.a. for a real estate investment? Amazing; around here real estate investments return zero or below and investors count on property price appreciation, tax deductables or maybe rent increase.
Depositing same money in bank will give more than twice the return.
Money is subject to inflation, because houses (and other goods) rise in price / money is watered down.
So: You may have no gain, but your savings are protected from dropping 5 to 9 percent each year, if "you have it invested in real estate".
Sounds good to me.
I do not not see that happening because price correction have already started if you are an individual seller.
For politically connected developers, game is different.
This happened/happens so often, in so many places and markets. Just to mentions a few recent ones: dot-com "new economy", housing bubble in the noughties, cryptocoins right now... it's always, "this time is different".
We're talking about India.
"Property tax to GDP ratio in a country generally does not exceed 3 per cent. For developing countries, the average property tax to GDP ratio is around 0.7 per cent. Reliable information on the collection of revenues from property tax in India is not available, but property tax collection is estimated at about 0.2 per cent of GDP.
...
Delhi offers an example where the total number of properties is stated to be 25.3 lakh, but only 9.6 lakh properties are on the municipal tax register. Low collection rates are also a dominant feature of Delhi, reflecting administrative inefficiency."
http://icrier.org/Urbanisation/events/Simanti_Sept_30_2013.p...
The idea between property tax seems to be different between countries. I learned that in some countries you pay annual property tax based on the estimated value of your property - which would be not-beneficial like you said.
Here in germany you pay an annual property tax which is calculated based on the land area that you own. E.g. you pay for 200m^2, and the amount of tax per m^2 is fixed by the city. That means you would pay the same independent of whether you value or property at 1€ oder 10M€. There's also a real estate transfer tax which the buyer of a property needs to pay. This is calculated based on the real price. However it doesn't affect the seller. So valuing your property higher than it's market value has no tax implications, but of course it will be a lot harder to really sell it for more than market rate.
Does Germany not fund its schools with property tax?
There have been serious proposals for reform in the past few years but a tax based on land area alone was not seriously considered so far by the competent body as far as I know (but there have been calls for them to do so e.g. by some mayors).
Nonetheless, property tax ends up in the hands of municipalities, making up about 15% of their budget on average. Roads and schools are only partially funded through the municipality's budget, a huge chunk comes from higher levels. For schools, municipalities pay about one third of the cost (again, on average). This ensures e.g. that schools are adequately funded even in poor districts. It also has practical reasons. For example teachers are usually not employed by the school itself but civil servants of the state delegated to teach at the school. Thus their salary doesn't end up in the school's budget.
Distribution of tax income and expenses between the different levels of government is highly political and constantly bargained. For example, just this year was decided that the federal government gets more administrative rights regarding highways and digitalization ("data highways") for giving the states 4B€ more of the sales tax.
Well its India, in some transactions, lets say the final price is 1 million, the buyer and seller will agree to show the price as 800,000 legally (so you pay the tax on that amount) while 200,000 is paid in cash.
Out of curiosity, who is "pricing" these houses at $1MM?
This happened in Italy during the first couple of years of the big crisis, around 2008. People here were so attached to the idea that house prices can't go down in Italy, that sellers just waited longer and longer to sell at their expected price... then, all of a sudden, we had something like a 30% correction when people, banks etc. couldn't wait any more.
How do you know that?
They now demand _better_ education and access to _better_ public schools, which is totally fine. However, the real problem here is how many of them are paying tax/social security contribution when compared to the rest of the population? e.g. how many people actually believe that those construction workers building skyscrapers in Shenzhen actually pay a fair amount of tax/social security contribution?
Guangzhou is piloting a new level of PC without addressing any real issue.
As a foreigner higher paid "migrant worker", we are not garaunteed access to public Chinese schools even if we pay taxes. We have to use private international schools for our kids instead. Public is just not an option. For my Chinese colleagues at work who lack hukou, ditto, though they can try to negotiate their way in to varying degrees of payment and success.
Guangzhou is doing a couple of things: those with skilled worker permits who are paying tax can get schooling for their kids even if they don't have hukou, a novel thing in china. And you can get priority access to a school in the local area just by renting an apartment.
Those construction workers do pay social tax contributions, and no, they aren't treated fairly at all because of their rural hukou. The GZ policy isn't even really aimed at people like them, it is rather aimed at people like us who make much more money. See:
http://www.globaltimes.cn/content/1057090.shtml
(Using very recent Chinese sources). They specifically require a "highly skilled worker certificate in lieu of hukou". So as usual china doesn't care about poor migrant workers, they have to leave their kids behind.
You basically got misled by what you was told. To just name one simple example - rural hukou is better because every single one of those households was recently given land for FREE. CCP confirmed a few years back that the land given to those families back in the 70s/80s will permanently stay under the name of the current owning family without any further tax/levy. Next time when someone complains about the unfair rural hukou treatment, please don't forget to ask them how much land was given to them for free. Those living in the cities (e.g. me) never ever got that stuff. I'd happily trade my non-rural hukou for a rural one to get my fair share of those free rural land.
Be prepared when they explain to you about nonsense stuff like "oh, land is owned by the country, we were just given permanent right to use the land tax free".
I know that, and I also know that it gives kids access to substandard education in toufu schools along with requiring higher gaokao scores to get into urban universities, the only ones in China that don't suck. Many of these kids are left at home with their grandparents because their parents have gone off to the cities to work. They maybe see their parents once a year during Chinese New Years.
> Next time when someone complains about the unfair rural hukou treatment, please don't forget to ask them how much land was given to them for free.
Nor can they ever sell this land and move to the cities unless the government explicitly compensates them for confiscation. They can't even use the land as collateral for a bank loan to upgrade their farming infrastructure. They would basically be treated as serfs if they didn't become migrant workers in the cities.
> I'd happily trade my non-rural hukou for a rural one to get my fair share of those free rural land.
You have Shanghai hukou and you'd trade it in for rural hukou just for a few acres of land that you have to farm and can't sell? I'm not sure if you are being serious here, I'm tempted to post it on WeChat for laughs.
> Be prepared when they explain to you about nonsense stuff like "oh, land is owned by the country, we were just given permanent right to use the land tax free".
See above.
Students from the same province, rural or urban, subject to the same standard. the real gap is between different provinces, e.g. urban students from province X living a modem fancy city life can still be at disadvantage compared to students from the rural part of Beijing living their boring village life.
Note that the gap between different provinces have been there for hundreds of years[1].
> Nor can they ever sell this land and move to the cities unless the government explicitly compensates them for confiscation. They can't even use the land as collateral for a bank loan to upgrade their farming infrastructure. They would basically be treated as serfs if they didn't become migrant workers in the cities.
Serfs? You mean they were given the land for free and they are allowed/encouraged to rent out the land to generate an income, this is now the new definition of serfs? Maybe the government who gave them the land should issue an apology and compensation to all those received such free land?
[1] https://zh.wikipedia.org/wiki/%E5%8D%97%E5%8C%97%E6%A6%9C%E6...
Will it happen? Yes.
That said, the capability to house millions of people in 'new' construction over a short period of time (less than a year) is a new capability that is only now becoming possible.
One of the things I try to avoid is assuming that problems that had either no solution or only bad solutions in the past, continue to have only bad solutions.
Wow. What is the median salary in Shenzhen? And how do people who earn that afford million dollar apartments?
Very few people earn salaries over 20,000CNY/month (USD$3k), most white collar professionals are in the 6-10,000CNY/month range (~USD$1-1.5k+).
How do people who earn that afford million dollar apartments?
They don't. They bought them years earlier, when they were way cheaper.
Investment boom is the easiest problem to solve. Pollution is far worse problem and needs quick solutions. Pollution may be part of the reason why infrastructure doesn't sell. Shenzhen has the best air quality of the largest cities, but it still feels bad and above WHO safe limits.
Or is it just too early to tell?
I was fortunate to stay at the hotel at the top of Guangzhou's IFC (the first and probably last time I get a room that is above the 90th floor). Looking down on Guangzhou's skyline, at least, it was very beautiful (especially when a lightning storm rolled in).
People can't afford to rent or buy them yet they still move about the property market.
At some point they will surely come back into circulation at a price that makes sense for individuals, that is of course if they aren't all owned entirely by corporate scale landlords with bigger pockets.
this is an interesting phenomenon, because it's the same mechanism (imho anway, as an armchair economist) as gold prices rising during uncertain times. The actual use of gold is little to none, and yet, as a store of value, everyone in the society agrees on its stability/valuation, even in times of gov't hostility.
If you look at property this way, chinese speculators are using the same line of thinking - where they actually don't want the apartment to be rented out (and thus, look/feel 'used'). The price reflects not the utility, but as a store of value.
I think the fundamental reason this is happening is that the chinese do not trust their own gov't enough to store their assets in a more liquid form. Or, perhaps there's really no other forms of storage that's not risky. And those who can't bring their currency assets out of the country then must choose real-estate.
Not really, it is as simple as "It is more profitable and equally risk-free to buy house than letting money rot in the bank."
People are still rushing to buy whatever government bonds as soon as they are available, because they pay good interests and are less risky. People in China are driven by pragmatism more than loyalty or distrust in the government.
but what doesn't make sense to me is why not build more property to sell?
The money the original owners got for selling must be circulating somewhere, which means a boost to the local economy, which means they should have money to invest in new development.
nonsense. check the total amount saved in state owned banks. or check how many seconds it takes to sell government bonds.
http://www.smh.com.au/business/china/with-28-trillion-in-sav...
Leaving your money in a bank, the most liquid way to store it provides almost no appreciation on that asset. I think the Chinese put their money into real-estate for the same reason other people do - because it's seen as a good investment:
The yield is pretty much the same: each ￥10m RMB generating only 10-12k RMB rent per month (with properties that have fancy reno excluded).
Unlike Japan, China is still in the midst of urbanization and growth. The gradually slowing pace of growth and urbanization does not mean that the scale of infrastructure investments is outpacing the eventual need. Over 100 million people have still to find their place in cities. China will start to resemble Japan around 2040-2050.
Investors are hurt and timing misallocation is not a good thing, but China is not where Japan was in the 90's.
If you watch any of the driving in China videos on youtube, you'll see that streets are lined with shops and sidewalks that are sterile and look identical block after block...
There are exceptions of course, city squares, etc, are largely unique from one another.. but once you get into the urban residential and shopping districts, they mostly are all identical
Which areas have you been? There's actually a lot of variation across the city, but single districts tend to be fairly similar. For example, Luowu is old and crowded, and quite built up. Futian is car-oriented, with wide roads and a commercial focus in most areas, but also a cultural area. Huaqiangbei area has huge malls, tech, but also parks and gardens. Nanshan has a lot of tech companies and universities, but also some lovely green areas. Shekou is another old area but with a glitzy mall zone as well. Houhai is a huge mall area with a theater and open public space. Qianhai is an emerging financial district with lots of apartments and westerly water views. There are numerous mountains across the city, many of which have nice streets and parks nestled against them. Then there is the semi-industrial Bao'an district, a lot of waterfront parks, beaches out to the east, etc. It's pretty varied I'd say. Perhaps you just haven't seen enough of it?
For example in the USA, iconic places like LA, Miami and Chicago also are extremely boring and and look similar street by street. Especially LA. After hearing the hype for about 3 decades visitors will just realize it's extremely large ghetto connected with 8 lane highways.
Haven't been in Shenzhen myself but I used to live in Shanghai and visited Beijing and Suzhou often, all of which were really interesting places and didn't "lack character".
In contrast, they think China is diverse.
The big problem is Chinese brick and mortar retail is so dysfunctional, and it will never be fixed since online shopping has easily solved that problem around it.
For example, in Shanghai, you can find Art deco, Shikumen, Soviet style and modem buildings everywhere. You simply can not find such a similar mixture in other places. If that is not considered as "character", then you need to seriously consider what do you mean by "character".
Get out of the touristy areas, and everywhere in china, crap starts to look the same...
"Identical" seems a bit too strong of a word though, especially considering there are 160 Chinese cities with more than 1 million people, and 3.7 million square miles in the country. There must be some places where streets are not generally identical and totally lacking character.