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Comment by metalliqaz | Hacker News Reader

This article starts with a confusing anecdote.

> Even in a so-called second-tier city like Jinan, a 100-sq.-meter apartment would cost him about 2 million yuan ($297,000). Yan, who makes roughly 6,000 yuan a month working for a local environmental nonprofit organization, is only able to afford half of that, despite years of saving and generous support from his parents.

The article then goes on to talk about massive oversupply in the housing market. At the end, it mentions a 20% drop in housing prices in some places, but the article also mentions that cities responded to slowing housing markets by removing a price cap on units.

How is housing so expensive in the first place? Is it because of speculative investment?

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Because there was a demand from many people moving into the core cities and Chinese people value owning your own house as a status symbol and to marry (can't marry without a house). As well even up to now the previous homebuyer generation (people who should be 50 to 60 now) can still pay for the prices due to the sudden increase in normal people's wealth and deep savings.

However after a while many people caught on and it turned into speculation with people randomly buying housing and increasing the price sorely for property investing. As well the previous generation have more money and income and could pay, the current generation of homebuyers (25 to 35) are still either too young or not as wealthy as the previous which is hurting demand, moreover the excess speculation and the extreme prices for even the previous homebuyer generation have scared off many buyers.

As well, note that in reality only core city prices are insane such as Beijing, Shanghai, Chongqing, Guangzhou area. Places with not a lot of people, the property prices there are just around inflation prices.

Note that I speak from personal experience from Chinese property investing. As well China is so big that any generalization is flawed so note that too.

Speculation is also a problem in Wenzhou (no surprise there), Hangzhou, Kunming, Xi’an, Changsha, Chengdu, ... basically any big city has some property bubble going on at various stages of inflation or deflation.

it was so bad in Hainan they had to institute pretty strong quotas

Is it because of speculative investment?

Basically. Here's some helpful audiovisual material:

https://m.youtube.com/watch?v=BcyYyyaPz84

Around the 9:00 mark the get to the meat of the whole thing.

That's ... outrageously nuts.

Oh Holy Jesus...

That, what, 2km of street there? I paused the video, there's ~39 stories per building (40 is unlikely, as the number 4 is considered unlucky), assuming 2 windows per condo, that's ~10 condos per floor, so ~400 condos per building. From 8:15 to 10:13, there are 12 towers on the left side of the street. Later at 13:00 they mention that this condo supply could house ~1M people! And it hasn't been filled for nearly 5 years! Per other commentators, such condos are ~$200k each (Note: I've no idea on the actual prices here).

So assuming these numbers, there's ~$960,000,000 of simply empty condos, just on the left side of that one street! Even if I'm high by a factor of 100 (totally possible), that's ~$10M per linear km of totally empty condos. The rows of towers go about 3 deep. At about 11:15, you can see the that entire horizon is filled with these empty towers (so claimed by the narrators). So, that's what, roughly $1B to $10M per square km of totally empty condos, so somewhere between $1000 and $10 per square meter of empty real-estate?!

Look, I'm not an economist, but there is just something deeply, deeply unsettling going on here.

Guys, Chinese real-estate can't not implode. And badly.

> Guys, Chinese real-estate can't not implode. And badly.

Having lived in China for almost 5 years (and working in property), I too held this view. The whole system defies logic.

There is one key difference from the West - capital controls. If you literally are not allowed to put your money elsewhere except for a bank of risky stock market/financial products, why not put it into real estate? An apartment is unlikely to disappear overnight into thin air (though it could certainly collapse or catch fire).

Everyone ends up riding the same merry-go-round - in a closed economy, the money has to go somewhere, so property ends becoming a marker or store of value (I.e. a currency) rather than an asset in and of itself. At this point in time, it’s on par with gold.

Except for instead of having something that has held value for thousands of years, you have an unfinished concrete box.

I took the high speed train from Shanghai to Huangshan this autumn, and saw this everywhere. Even in the middle of nowhere, you'd see sixteen towers under construction, being built simultaneously by sixteen cranes, as part of a development of dozens more. And this was very common to see.

we are missing so much information, namely what is the build cost for that apartment. how much beyond construction is paid out to the local government. then comes, how much over sale has their been on the investment side, was the value appraised much higher than the expected sale was?

finally how many people are actually looking for residences?

The cost of the building is less than $250 per square meter. The cost of the land below, given the very high towers, cannot be much if you divide by 40-50 stories.

It should be about 32 stories max if they are using Chinese concrete construction techniques (most likely).

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