Ordos, China: The World’s Largest Ghost City (2014)
thebohemianblog.com
thebohemianblog.com
https://www.bullionstar.com/blogs/koos-jansen/guest-post-5-c...
http://blogs.reuters.com/great-debate/2015/04/21/the-myth-of...
These ghost cities start that way, but they all end up being populated, and as soon as the flood gates open, they fill up fast. It just takes certain factors reaching critical mass to push them from the 'No one is living there' to 'Everyone is moving in and filling the entire place up'
Edit: Looks like it's already begun in Ordos as well. http://tmagazine.blogs.nytimes.com/2015/03/06/ordos-china-to...
As usual, the initial settling is largely happening due to the Chinese government applying artificial levers to get people to move there, but that's a tactic they've used successfully on a lot of these "ghost towns"
http://www.bloomberg.com/news/articles/2015-05-07/here-s-how...
China is about to become the most indebted nation. At the rapid pace they're accumulating debt, that should happen within the next few years. They've spent wildly to keep the building spree going; even now their real estate market is crashing, it has been falling for a year.
It begs a simple question: how many more people can China transition out of old China's poverty, and into the new China's middle class, before they run out of the ability to accumulate more debt to keep it all going (global consumers are tapped out, which has left China's manufacturing boom dead in the water, with their PMI contracting during a supposed non-recessionary period).
I fail to see how thinking ahead equates to taking on tens of trillions in new debt to fake economic growth. That sounds like they're baking up an economic recipe for future stagnation.
I see this as a pyramid scheme. The local municipalities can get away with not charging taxes because so many new construction is going on. But a few years from now when construction has slowed down, they will need money for schools, hospitals, etc. By that time they will have to charge taxes and it will become a losing proposition to maintain empty properties.
How much emotion can you really capture with a picture of ordinary buildings...just without people walking by. I'm sure there are people there too and the photographers just wait for a good moment when no one is walking/driving by to snap the photo. (Some of the photos from this article even have cars and people there too...)
On the edge of the grass pitch – regularly mowed, yet never used – we were pointed towards a series of bronze statues. The figures showed children in traditional Chinese dress, frozen in play as the pink silk scarves tied about their necks flapped noisily in the wind.
'Fifty thousand Quai!' the man giggled, ecstatic, before explaining to us that the silk scarves were washed and replaced on a weekly basis."
Apparently thousands of buildings are being maintained, cleaned, even silk scarves on statues getting washed -- for nobody to see.
Who is paying the maintenance workers' wages? The local government?
Why are the prices so high?
Obviously nobody wants to pay $500k - $1 million for a 1,000 sqft. apartment in a Chinese ghost town.
An alternative explanation is that the owners of these houses don't really want to sell them at all for some reason. Maybe keeping the money tied in unsold real estate is somehow preferable to having cash or other assets, due to e.g. government housing subsidies or something?
Economical or political crisis hits, and they'll have to live in those apartments for 50+ years. We've been there already.
How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected.
It's a royally crappy idea anyway. Imagine selling one of those apartments to a person aged 40, who then promptly retires and have to live 20 years in a crumbling home or lose one and go homeless.
Apartment is supposed to be a solid investment.
My rented apartment in central Beijing is about 10 years old, considered fairly high end (we pay 7500 RMB/month for a one bedroom), and is already showing signs of deterioration (and our complex is considered "good" and well managed compared to the other ones in our fairly middle class Sanyuan Qiao area). It is a combination of poor construction techniques + poor maintenance + poor planning. The government and development companies "built to build" with little focus on the long term.
They are already tearing down developments made 15, 10, or 5 years ago, or even before they are finished* for "re-development."
* http://www.zerohedge.com/article/china-proudly-demolishing-b...
> Maybe the price was quoted in $/m^2 and the unit was mistakenly switched to square feet at some point?
May make sense since the m^2 prices would be the more rounded $12,000 and $5,000. Though it's also likely the price was also switched from RMB to $.
Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. Houses go from $100k to $120k in two years? Alright well let's buy a house as an investment on a shitty salary, it's free money.
Until everyone said that, and the rate of prices going up kept increasing, and kept reinforcing the investment opportunity myth.
Basic bubble, basically. And it was of course fueled by insane growth in wages.
I mean just look at these graphs for wage growth: http://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina....
It's insane. You basically had 20-30 years of 15% growth annually. 20 years of that is 16x. 30 years is 66x. It wasn't quite 15%, but probably 10-11% on average the past 30 years. That means housing prices will naturally rise, and when they naturally rise for decades and there's seemingly free money if you invest in a home, it's easy for an investment bubble to arise that even outpaces wage growth.
Then add to that two more elements: gigantic internal migration (China has internal passports, it's very interesting. But it doesn't stop huge urbanisation).
How big? Well 25 years ago urbanisation was about 25%. Today it's about 55%.
Then add to that population growth of 200 million extra people. What do you get? No joke, half a billion extra people living in cities compared to just 25 years ago, in China. That's insane. That's literally the entirety of North America (more than 20 countries), or all of South America times 1.5, or all of Europe and then some, living in cities, many of them existing ones.
And that's how you get homes worth $200 - 400k, for Chinese who have a $7k GDP per capita, and middle class wages deviating from that only slightly higher.
Partially it's alright. China will still urbanise, it will have to demolish and rebuild many buildings, and its population will add another 100m people. But on the other hand, it's an extremely worrying asset bubble we don't talk about enough. People forget that China was, though far from alone, in some ways quite instrumental in dampening the effects of the economic crisis. One can worry what happens if an economic crisis arises from China itself, as asset prices in some areas are just absolutely batshit insane and will have to be written off at some point, which collapses the house of cards. (selling overpriced property for nothing, which already happens but is inevitable on a larger scale, reduces all property values, who are overpriced too, escalating a major selloff that'll leave tons of debt in its wake. Familiar story of course.)
If wages keep growing they could catch up to the house prices somewhat.
Meanwhile here in the Netherlands a typical house will set you back $250k but the per capita gdp is $50k. Of course the Netherlands is wealthier, but you'd think its housing prices would reflect that and show a similar income/housing ratio, roughly speaking, but it's just completely different.
Housing is in a huge bubble and there's a crazy gap between wages and housing in China. If wages continue to grow while houses don't, sure... but that'd also mean people will sell their homes because they're no good as an investment anymore, which pops the bubble, and that'll create a ton of debt as people are stuck with $200k mortgages on a home worth $100k or less, that's structurally so unsound it'll be demolished within 20-30 years.
My outlook is pretty pessimistic tbh. Although it does seem to be a problem confined to particular areas, that must be said.
"house prices can drop as quickly as they rise. Vietnam's did with a vengeance in late 2010 as the economy slipped. Prices are down by 50 per cent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property..."
Economic growth dropped from about 7% nationally to about 5% and maybe 0% in Saigon but is now back to growing 7%. Property in the overpriced new builds is still down 50% or so but showing signs of recovery - life goes on indeed it's kind of booming just now after being pretty quite a couple of years back. I imagine China will be similar.
For other Person of Interest fans I found that Ordos was a ghost town interesting from that aspect of things as well.
http://www.dailymail.co.uk/news/article-2102074/Spain-haunte...
although things seem to be improving there:
http://www.ft.com/cms/s/0/350b9c8c-43f4-11e4-8abd-00144feabd...
imagine if they built vegas and nobody came. that's it, in a nutshell. it's not that weird.
There are good reasons why this happens in China, but it's still super weird.
Funnily enough, the person to first advocate as little interventionism as possible for government was Chinese philosopher Laozi, who compared governing a nation to frying small fish for lunch: too much stirring and lunch is ruined.
That's fucking weird... I wonder on what scale it becomes weird to you. Imagine we built 100s of cities on another planet and just left it empty...
I do appreciate, if this is the point you want to make, that literally every newspaper, tv station, radio show, photographer etc has done a piece on Ordos. I've read the same article a million times now and it's totally uninteresting. But that's a function of overreporting, it's still inherently interesting to me.