SHANGHAI/GUANGZHOU/TOKYO -- A popping sound, not unlike the finale of a fireworks show, echoed through the area, and a cloud of dust billowed up into the air. In late August 2021, 14 unfinished apartment buildings were demolished in Kunming, Yunnan Province.
The developer had run into financial difficulties and abandoned construction. After the buildings went unattended for seven years, it was decided that they should be demolished out of safety concerns. In less than a minute, they collapsed into piles of rubble. It was an unsatisfying end for the massive project.
China's real estate market has been rocked by the kind of problems facing China Evergrande Group. President Xi Jinping, who has hailed the nation internationally as "Great China," is slowly and quietly starting to act in order to save face. One of the main tasks is dealing with the empty developments known as "ghost towns."
But some worry that these developments are just the tip of the iceberg. Data clearly show anomalies in the Chinese real estate market.
Real estate prices in China are now 2.6 times higher than in the U.S. Nikkei estimated the total market value of housing in China in 2020 to be $95.6 trillion.
European Space Agency satellite images show a Yunnan Province "ghost city" in March 2021 (left) before its demolition, and afterward in November 2021.
China and the U.S. are about the same size, but in China land is publicly owned. If the Communist Party of China gathered up all of the land in the country, it would be able to buy the entire U.S. twice over and still have plenty of change left.
Nikkei's calculations are based on a paper by professors Kenneth Rogoff of Harvard University and Yuanchen Yang of Tsinghua University. Looking at real estate market trends based on housing area per capita, population and housing prices published by China's National Bureau of Statistics, the market value has more than tripled in the past 10 years. Even the U.S., which has a surplus of funds, saw growth of only 1.7 times over the same period, making China's rapid expansion truly remarkable.
According to Rogoff, the real estate sector accounts for 29% of China's gross domestic product. That is greater than the peak levels of Spain and Ireland during the financial crisis in the 2010s. If real estate were to contract by 20%, the overall economy could shrink.
The distortions are seen in the fact that Evergrande alone has over $300 billion in debts. In urban areas, many wealthy people own multiple houses, and the apparent rate of homeownership is over 90%, greater than in Singapore and the highest among major countries. The vacancy rate is over 20%, higher than in Japan or the U.S. The supply and demand are completely unbalanced.
Since the first disbursal of land-use rights in the 1990s, the housing market, supported by the world's largest population, has become a symbolic growth industry in China. However, even though China's nominal GDP is only 70% that of the U.S., land prices are more than double. There is a good chance that the forced expansion has already peaked.
Some buyers of unfinished apartments have pitched tents in windowless bare concrete rooms. (Photo by Yusuke Hinata)
"Where did our hard-earned money go?" One after another, similar complaints were posted to the Leaders' Message Board section on the People's Daily Online, a website run by party-affiliated media. When the posts were collected and analyzed, instances of the word for "unfinished building" jumped to 4,982 cases over the past two years. There are more than 80 ghost towns in Yunnan alone, Nikkei learned.
Most of the complaints are from locals who have spent their money to buy housing in buildings that have not been completed.
"The government will save us, in any case" -- that kind of misplaced confidence by businesses and individuals in a government bailout has reached a dangerous level. The same is true of foreign investors, who snapped up Evergrande's corporate bonds despite the company's low credit rating. In other words, China's real estate bubble is essentially a massive game of Old Maid. When it bursts, the global pain will be immeasurable.
Buyers with nowhere to go live in unfinished apartments
People have begun living in apartment buildings that are still under construction. After the contracts were signed, the developer ran into financial difficulties, and delivery of the properties was delayed. The buyers, unable to both pay off a mortgage and make the rent on another property, are forced to live in their unfinished apartments. Some abandoned properties are being demolished, a clear sign of the distortions that can come with high growth.
At one apartment in a complex in Huangshi, Hubei Province, futons are laid out haphazardly on the concrete floor. There are no windows or doors in the room.
The units were supposed to be delivered between June and September 2021, but construction was greatly delayed because of management issues at the developer. Over 800 households are reportedly waiting for their apartments. Orsun Holdings, the developer's parent company, acknowledged the difficult situation, saying, "Pressure is increasing from all sectors due to major changes in the market."
"Li," who asked that her real name not be used, is one of the buyers. In China, owning a home is an important condition for being an attractive marriage partner. Li decided to buy the apartment so that her son, who is in his 20s, could get married.
A growing number of people have to sleep in apartments that they bought before construction was stopped. (Photo by Yusuke Hinata)
To purchase the 700,000 yuan ($110,000) apartment, she borrowed 120,000 yuan from a consumer finance company to make the down payment and cover other expenses. Her monthly loan repayments amounted to over 12,000 yuan, and she could not afford a new apartment for her whole family. Others in this unfinished building in similar circumstances live together.
They use solar-charged lights at night, and carry their trash in buckets to dump on the mountain behind them. On cold and windy days, they sleep in tents inside their rooms. There are of course no functioning kitchens, and they cook on commercial stoves and using firewood.
There are reasons other than financial ones to live in this manner. "This puts pressure on the developer," said Li.
With encouragement from the local government, construction resumed in November. "I can only thank the government," said Li. "They're the only ones I can count on." However, there is a shortage of large cranes and other necessary equipment, and it is unclear whether the units will be successfully delivered to buyers.
Many people put most of their wealth into housing. (Photo by Yusuke Hinata)
"Lin" is a factory worker living in Zhanjiang in the southern province of Guangdong. The 37-year-old also declined to give her real name. In 2017, she made a down payment of 260,000 yuan, which she had saved with her husband and parents, and signed a contract to purchase a 700,000 yuan apartment. They looked forward to moving in while making 2,600 yuan monthly payments on their loan, but then construction stopped, and the unit was not finished by the scheduled handover date of November 2019.
Still, she was optimistic that another company would take over the project and the government would work to fix the situation. But months passed with no change. "When will we be able to live there?" asked Lin's father, who suffered from rheumatism. He passed away while worrying about the house.
Unable to pay rent and her mortgage, Lin also decided to live in her unfinished apartment, where construction had stopped in October 2020. Along with about 10 other households, she moved into a "new apartment" that was just a concrete frame. However, in December she returned from an outing to discover the building sealed with nails and chains. The police were also called in, and residents were ordered to delete photos and videos taken in the apartment.
Clothes left out to dry are a sign that someone is waiting for a unit to be delivered. (Photo by Yusuke Hinata)
Lin and her family now live a rented house outside the city, far from school and work. Their rent is 1,000 yuan per month, and they continue to pay off the mortgage. Her husband's elderly parents support the family through day labor.
"I bought a home so we could live a bit more comfortably," Lin said. "Now we're forced to live in darkness, like before the People's Republic of China was established."
