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"Typical housing prices in Kangbashi have fallen from $1,100 to $470 per square foot, over the last five years alone." Why are the prices so high? Obviously n

by dm2 11y ago

"Typical housing prices in Kangbashi have fallen from $1,100 to $470 per square foot, over the last five years alone." 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.

pavlov 11y ago
That does seem insanely expensive. Maybe the price was quoted in $/m^2 and the unit was mistakenly switched to square feet at some point? 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?
- seanmcdirmid 11y ago
  Nobody wants to take a loss on real estate in China, so they'll just wait until the market is better or they get compensated by the government when they eventually "redevelop" the land (those apartments only have an effective 10-20 year lifespan given quality of current construction methods). They don't take out big loans to buy these places, so there is no liquidity pressure. This is good and bad, no housing market crash but a huge zombie market of low turn over of second hand housing even in much more active first tier cities.
  - guard-of-terra 11y ago
    "those apartments only have an effective 10-20 year lifespan" 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.
    - ics 11y ago
      "Modern materials" doesn't necessarily mean the most durable or well-suited to the task. It typically means cheap to produce (therefore readily available) and visually... acceptable.
      - seanmcdirmid 11y ago
        The concrete China uses is pretty cheap actually, and the labor used to put it together is fairly unskilled. They have to build much thicker as a result, which leads to higher maintenance costs (which isn't done) and much quicker degradation.
      - deleted 11y ago
        [deleted]
    - seanmcdirmid 11y ago
      > How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected. 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-buildings-completed-pursuit-great-housing-bubble-perpetual-engine http://www.zerohedge.com/article/china-proudly-demolishing-b...
  - deleted 11y ago
    [deleted]
- vorg 11y ago
  > "Typical housing prices in Kangbashi have fallen from $1,100 to $470 per square foot, over the last five years alone." > 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 $.
IkmoIkmo 11y ago
> Why are the prices so high? 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://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina.png 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.)
- 11y ago

by dm2 11y ago

pavlov 11y ago

That does seem insanely expensive. Maybe the price was quoted in $/m^2 and the unit was mistakenly switched to square feet at some point? 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?

seanmcdirmid 11y ago
Nobody wants to take a loss on real estate in China, so they'll just wait until the market is better or they get compensated by the government when they eventually "redevelop" the land (those apartments only have an effective 10-20 year lifespan given quality of current construction methods). They don't take out big loans to buy these places, so there is no liquidity pressure. This is good and bad, no housing market crash but a huge zombie market of low turn over of second hand housing even in much more active first tier cities.
- guard-of-terra 11y ago
  "those apartments only have an effective 10-20 year lifespan" 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.
  - ics 11y ago
    "Modern materials" doesn't necessarily mean the most durable or well-suited to the task. It typically means cheap to produce (therefore readily available) and visually... acceptable.
    - seanmcdirmid 11y ago
      The concrete China uses is pretty cheap actually, and the labor used to put it together is fairly unskilled. They have to build much thicker as a result, which leads to higher maintenance costs (which isn't done) and much quicker degradation.
    - deleted 11y ago
      [deleted]
  - seanmcdirmid 11y ago
    > How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected. 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-buildings-completed-pursuit-great-housing-bubble-perpetual-engine http://www.zerohedge.com/article/china-proudly-demolishing-b...
- deleted 11y ago
  [deleted]
vorg 11y ago
> "Typical housing prices in Kangbashi have fallen from $1,100 to $470 per square foot, over the last five years alone." > 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 $.

IkmoIkmo 11y ago

> Why are the prices so high? 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://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina.png 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.)

11y ago