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Here in Shenzhen, I would argue that it's fairly clear to anyone on the ground that the boom has ended.

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.

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Similar situation here in some parts of India. There are dollar millionaires on paper with family incomes of under $1500/month, all because they bought an apartment in Delhi 10 years ago.

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

You can price something at whatever you want, but if there are no buyers, it's not worth that.

China is a bit different: the real estate agencies that will show your apartment won't bother listing and showing it if it's under a certain price. They basically work together to drive up prices, which also leads to higher commissions of course, but there is also some government control as the agencies are all owned by princelings. You can't really hope to sell without an agent, so you can't drop your price even if you wanted to.

I'm not sure if India has a similar problem.

In a similar country to China, Let's say the last deal in a certain area was done for $1M 5 months ago. At this point all similar apartments in the area are considered or put on sales at this or a higher value. Then time elapses with no new deal but owners feel wealthy.

India is exactly the same. Collusion between developers and politicians is creating an illusion that everything is all right and prices are going to go up again so a minority with surplus money left is still buying.

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.

Some will be able to cash out obviously. The problem is that if a significant but small percentage tried to cash out, the market would collapse pretty quickly. Ugh, you have to have balls of steel to play in these kinds of market, and timing needs to be good as well.

How did they end up investing your money without your consent?

I don't think they did it without his consent. The thing is, investing in a house is one of the first things your parents would ask you to do once you start earning; and considering the amount of influence your parents have on decisions like this in India, he would probably have had to go with their opinion.

> investing in a house is one of the first things your parents would ask you to do once you start earning

Indian here, real estate and gold are considered safe investments in India. Bonds and stock market are considered as casinos.

>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?

Suggesting any other form of investment is just considered too risky.

There is collusion between banking, real estate developers, agents and politicians in the western world too ...

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.

Real estate investment is the new Swiss bank account. It's acceptable to take some losses every year, if it means you get to keep your hoard.

In Indian context, it's below inflation. Cost of management and maintenance is also need to be added so effective it will be between 1 and 2 percent. Not great for developing country where inflation swings anywhere between 5 to 9 percent.

Depositing same money in bank will give more than twice the return.

The property (the house) is "inflation free/resistant":

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.

Well I may be wrong but you will be true only if I can't sell it at a price significantly higher than inflation.

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.

In India inflation is like 4% and growth rate is 7%. I think anything less than 15% p.a. return is not worth the risk at all.

If inflation is >4% then rental income and costs should also grow around that fast.

> Any evidence based arguments about history of real estates failures are simply ignored. Everybody thinks this India 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".

Is it possible to borrow against your houses "worth" in China? I'm wondering if these high valuations allow residents to borrow larger amounts of money using their houses "value" as collatoral? If so is it common?

There's only so long that can last though. If nobody is buying at the high prices then the agents who refuse to list lower won't earn any commissions and they'll eventually decide to lower their threshold.

Why would anyone value property higher than people are willing to pay? Wouldn't that just mean more property tax? Usually it's the opposite.

> Wouldn't that just mean more property tax?

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...

> Why would anyone value property higher than people are willing to pay? Wouldn't that just mean more property tax?

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.

Wouldn't this mean the guy with a condo block on his 200m^2 is being subsidized by the retiree with a single-family home on her 200m^2? More infrastructure, schools, wider streets needed for the condo.

Does Germany not fund its schools with property tax?

There's some multiplication factor in there which is higher for condos than for single-familiy homes. Which means in your example the first guy would pay slightly more. I don't know exactly how the taxes are used. I think property tax (Grundsteuer) is a tax which is payed to the city. But I'm not sure whether schools receive their fundings from the city, state, country or a mix of those.

They are not correct. Property tax in Germany is based on some fictious value (which is not necessarily close to market value) calculated using an old algorithm. Usuable floor area is an an important input, so a condo block and a family home are not taxed equally.

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.

> Wouldn't that just mean more property 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.

That's the opposite of what puranjay said. Your scenario is claiming to have paid lower than the real payment (to save on taxes, which is logical). Puranjay said that people claim the value is more than the real value.

> The apartments are priced at $1M on paper, but there are no buyers

Out of curiosity, who is "pricing" these houses at $1MM?

> The apartments are priced at $1M on paper, but there are no buyers.

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.

> The problem is, there are no buyers.

How do you know that?

Cities will keep growing in India. Because the gap between facilities available within a city and outside a city is so stark. That gap has grown exponentially in the last twenty years. If you want to run a business, find quality healthcare or education, resolve legal issues you head to the nearest city.

Fortunately there is still few decades of continuing albeit slowing urbanization and economic growth left for Chinese economy. Hundred million or more people are still going to move to cities. Even slowing down Chinese economy has massive infrastructure needs left. Empty space will be filled years later. Investors will suffer heavy losses but the material investments will contribute to the economy.

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.

If apartments are so expensive shouldn't that drive more construction? I wonder why construction has slowed/stopped if the existing stock is renting at such high levels.

Because the government restricts the supply.

That's true in most of the West, but if there are a bunch of half-completed buildings lying around, it's probably not the explanation in China.

Well half completed buildings are not worth anything if they can't be occupied?

You'd be surprised how much commercial real estate turned residential in Beijing illegally (e.g. Soho jianwai near guomao). I'm guessing there is a lot of residential supply, it just isn't on the market.

>"It is fairly difficult to rent a halfway decent apartment under about 6000CNY (~1000USD)/month, many pay double that or m"

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?

In my observation throughout key parts of the city the vast majority of new real estate visibly under construction is commercial, not residential. Only on the edges do you see new residential development. Therefore, I would hazard a guess that the supply in the most desirable areas has not increased, and perhaps actually decreased.

Where do get 10k from? Even your quote says 1k.

It's weird. In mountain view you can buy at 1.5m but rent around 4k ish.

The Chinese are big, big believers in buying your own home. That can translate into lower rents for a given purchase price. (Or, equivalently but possibly easier to understand, higher prices for a given rent.)

Also, until recently, renting conferred no social benefits that buying did; the most important being placement in a local public school. Guangzhou is piloting giving renters more social benefits, other cities are supposed to follow, but this is super recent.

Such claim is highly misleading at best. Think about those millions of migrant workers in Shenzhen and their children, did they go to some kind of public schools in the last 3 decades? did they all go to private ones or stay uneducated? surely they went to public schools dedicated to them.

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.

Wow, I don't think you are Chinese because you really don't know much about hukou, of which the rent issue isn't even getting near. First answer: mostly no. Second answer: most of them stayed home with grand parents (see China's left behind children problem). Third answer: there were cheap private schools dedicated to migrant worker kids, but the cities (like Beijing) shut them down saying they would try to take them in public schools, a promise that is never kept.

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.

My hukou is registered to the Jing'an district in Shanghai and I have been in the "system" for decades. ;)

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".

> To just name one simple example - rural hukou is better because every single one of those households was recently given land for 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.

> along with requiring higher gaokao scores to get into urban universities

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...

> purchasing a small apartment now costs about the same as Sydney, with a median price above USD$1M

Wow. What is the median salary in Shenzhen? And how do people who earn that afford million dollar apartments?

What is the median salary in Shenzhen?

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.

As someone 'on the ground' as it is I wonder if you know what ever happened to Broad Group[1] and their Sky City project [2]. Was that just a PR stunt for the company or do you think they will ever actually build something like that.

[1] http://en.broad.com/

[2] https://en.wikipedia.org/wiki/Sky_City_(Changsha)

That's a different part of China, but I can tell you that I know of at least one functional automated building solution under heavy R&D right here in Shenzhen with a reported R&D-only capex of over USD$1M/month.

Will it happen? Yes.

That is good to know. I expect that one possible future has rising sea levels creating 'cities on demand' on higher ground as people wait to the last minute to adapt. With a capability inland of the level projected by Broad group it would be possible to create housing for over several million people per year.

Centrally conceived housing projects don't exactly have a glowing report card.

No, they do not.

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.

I wonder if there might be a global housing crisis in the future. I know the population is constantly growing, but there has been a massive amount of construction of residential buildings world-wide (due to prolonged period of low interest rates, as well as rapid appreciation of existing assets).

Real estate is somewhat local. Bay area gets less construction because of zoning and nimby.

Population growth has been slowing since 1989 and the population in total is predicted to peak between the mid and late 21st century[1]. In many western countries this has already happened.

[1] https://en.wikipedia.org/wiki/Population_growth

From you own link:

"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.

On the other hand, the number of persons per household still has quite a bit of room for dropping in many parts of the world. The USA seems to have plateaued there at about 2.5 (https://www.statista.com/statistics/183648/average-size-of-h...), but China still is at 3.0, and India at 4.8 (https://en.m.wikipedia.org/wiki/List_of_countries_by_number_...). If both drop to 2.5, that's 20% potential growth in China and over 90% for India. Whether that will happen and at what speed of course is anybody's guess.

Strange that the boom ended and there's a glut in supply but the rental prices are so high. Seems to counter the prevailing narrative that "build! build! build!" housing supply increases will drive down rents.

Or is it just too early to tell?

Half finished buildings... As if Shenzhen wasn't already cyberpunk enough.

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