A land once overcrowded now builds cities for no one

9 Mar

 

Struggling to sell real estate. -- NEW YORK TIMES PHOTO

Struggling to sell real estate. — NEW YORK TIMES PHOTO

 

A Chinese casino dealer from Vancouver called about an investment. He said vacation homes in China’s tropical Hainan Island, off the southeast coast, were selling for 600,000 yuan or about $92,000. A friend of his bought 16.

China once had no room for its people. Dingy one-room apartments were the norm. That was 25 years ago. Today, there is housing galore. There is so much housing that many cities are completely empty.

Shiny, modern, architecturally splendid ghost towns.

They’ve been built for no one.

According to a report on CBS’s 60 Minutes, these empty new cities are being constructed at a rate of 20 or more a year.

The ghost towns – the name used for them by the Chinese – are not modest. They are grand, with rows of skyscrapers. Many resemble Manhattan.

Why are they being built?

They are being built because people like my friend and his friend are willing to buy them whether they are empty or not. People want to buy them because they see housing as a sure investment, with prices – because of massive speculation – going up and up and up, as if there will be no end to it.

To a smaller extent, this happened in the U.S. Remember? Homeowners all thought they were rich, or would be soon. A bubble was created, and it burst, causing the recession of 2008. The thought of easy money (the easier it looks the harder it hooks) causes people in both the West and the East to lose all reason. But how in God’s name can someone look upon an empty city, knowing that many other empty cities exist, and think real estate is a good investment?

How can developers get financing for these cities? How can an economy that not long ago could not feed its people sustain such ridiculous, irresponsible and wasteful practices? It strains my mental capacity to come up with answer.

But I feel confident of this: Soon there will be great hell to pay.

As the high price of wheat caused an Arab Spring, a drop in housing prices could cause revolt and even revolution in China. I see it as that serious. Average people have invested entire fortunes that will most certainly be lost. Chaos will follow, but it won’t bring back the money.

The Chinese government has tried to cool the housing market and stop the wild speculation. Recently, it said it would apply a 20 percent tax on the sale of investment homes. The New York Times photo at the top of this post shows people struggling to sell their properties after they learned of the new tax.  The Times also reported that couples are getting divorced as a way to skirt the tax and have two people claim residence in two houses.

Some China experts say crafty people will find ways to avoid the tax or the government will end up ignoring it.

So, the frenzied buying of homes is not likely to stop soon. It’s like a contagious disease. Even I would like to have a $92,000 vacation home on lovely Hainan Island if it will be worth $200,000 in a year or so. But if I can control myself and wait a little longer, I might be able to get it for $10,000 – or maybe two for 10.

In a country of 1.3 billion people, I’ll probably have the Hainan beach all to myself. A ghost beach is so much better than a ghost town.

By Lanny Morgnanesi

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