In a massive, 9 digital page New York Times Magazine story on how China can “go consumer”, there’s a bit about the ridiculousness of their real estate market that I wanted to highlight.
Regular readers know that I am alternately fascinated by and scared of the Chinese growth story – but it is the most important, market-moving story of our era. One of the most frightening facets of the Chinese economy concerns their overbuilt real estate, specifically the runaway prices per square foot and the idea that there are ghost cities being built just for the sake of building.
Here’s a glimpse of this phenomenon from David Leonhardt‘s must-read article:
But once you start to notice the signs of unsustainability, you start seeing them everywhere. Some highways are strangely empty. So are some buildings. When I tagged along with a group of American businessmen on a tour of what we thought was a new energy-efficient office building in Hangzhou, a coastal city a couple of hours south of Shanghai, we soon realized that it was — hard as such a thing may be to imagine — a sample office building. It had been built to show potential investors what their business might look like if it moved to Hangzhou.
This unsustainability is especially pronounced in the current real estate mania. Housing prices have been soaring, despite government efforts to cool the market. Relative to rents, housing prices in Beijing, Shanghai and Hangzhou are higher than they were in most any American city at the peak of our housing bubble. In Beijing or Shanghai, four or five different real estate agencies might open on a single block. Other agents simply set up shop on the sidewalk, with a table and brochures. At traffic lights in Beijing, young men walk among the idling cars and hand out brochures for newly built apartments.
Be sure to make time for the entire piece – it is loaded with stats and firsthand accounts, good and bad and ugly all at once.