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Beyond Ordos Redux - 64.5 Million Empty Homes now "Market Rumor"

I had been hoping to avoid this topic this week but with the avalanche of articles in the press today I can't maintain my silence.

From Bloomberg, two excellent articles. 

First, China Tests Set to Test Risk of Cash Crunch Among Developers:

China’s stress tests of banks will assess the risk that a possible slump in property prices may strain developers’ finances and cause homebuyers to default, a person with knowledge of the matter said.

The banking regulator told lenders to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent. 
Second, a must read profile of Soho China co-founder Zhang Xin, Beijing Billionaire Who Grew Up With Mao Sees No Risk of Housing Bubble.

Her story and the experience of many of the sent-down generation is something I find continually fascinating.  The adversity they suffered at a young age and their subsequent successes shares many parallels with America's "Greatest Generation". 

But today's property market excitement did not stop there.  Headlined across many Chinese financial sites today was the story that available residential real estate in China had surpassed 100 million square meters.  One of my first posts on this blog noted a story that cited the National Power Company as having released a study stating that over 64.5 million homes in China had registered zero electricity usage over a six month span.  A number of articles also mentioned this statistic over the last few weeks.

Today we get the governments response:


In recent weeks the market has rumored that there are over 65 million empty homes but official figures have so far not supported this contention.  The National Statistics Bureau ('NSB') has stated that obtaining the precise residential vacancy rate must wait for the national housing survey or the corresponding housing information contained in the national population census [ed. note: The population census is conducted every ten years and was recently carried out]

So there you have it, the 64.5 million empty house number floated last month is now "market rumor"  pending further study.

In the rest of the article, Huayuan Chairmen Ren Zhi Qiang (任志强) dismisses any talk of a bubble. He believes that the problem of empty houses is confined to the Tier one cities and that this is no problem as vacancies are not likely to reach any higher than the 6% rate we see in the Hong Kong SAR.  He believes the problem is one of income distribution and suggests that if taxes were levied on empty houses then we would see a corresponding reduction in them (just as we saw with recent limits on second-home purchases).  Make the tax too high and it would just be transferred to the consumer with a subsequent increase in rents.

In response to this Economist Xie Guozhong (谢国忠) says China's problem is "absolutely not a housing shortage".  Mr. Xie  estimates that China's Residential Vacancy Rate is between 25-30%, a number at least 100% higher than normal with the speculative value of such property accounting for a potential 15% of GDP. If recent property tightening measures are relaxed, then this vacancy rate could surge past 30%.

And I think this pretty much sums up the day in housing news.  Government regulators and independent economists fear a bubble. Soho's co-founder and a representative of the HuaYuan property development company do not.

Andy Xie addresses the issue here.