CHINA Nationalizing Real Estate as Property Collapse Deepens, Prices Crash & LGV's to Buy Apartments
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- čas přidán 25. 06. 2024
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The Property Sector accounts for around 25% of the Chinese Economy and the Collapse over the past few years has caused major problems for China. The latest data shows that the FALL in Property Prices is now accelerating. In January the CPP instructed the State Run Banks to provide debt to the Property developers to enable them to complete the build of the unfinished apartment buildings however this strategy has not proved to be successful. China has now announced additional measure to save the property sector including offering cheaper mortgages, offering mortgages with lower deposits and allowing Local Government to buy unsold apartments. In this video I provide more details of the current situation and discuss the potential impact on the Chinese Economy.
For specific details please check out the CHAPTER list below.
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Chapters:
0:00 Intro
4:21 PROPERTY PRICES
6:46 PROPERTY SALES
11:54 WHITELIST INITIATIVE
14:30 BUYER STIMULUS
16:24 LOCAL GOVERNMENT PURCHASES
18:40 SUMMARY & CONCLUSION
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the moment they started preselling homes the market was doomed.
I agree plus speculation The Chinese government has only bailed out first home owners
you dont pay tolls on bridges not built you buy a boat
Pre selling is a very common method in many places not just China. But it's always just the downpayment amt
It's not the presales that were the problem per se. The first issue is that the proceeds of those presales were used to acquire new land for development, rather than for construction. The second issue is that Beijing gets a cut of all tax revenues, but not other income sources like sales of development rights, so local governments became dependent on a growing market for anywhere from 20% to as much as 40% of their normal operating budgets (note that this isn't just about real estate, but also infrastructure construction and other industries). That was before the expenses of Covid lockdowns.
@@alexv3357 Those issues were inevitable because the government allowed it, thus the original comment.
In 1993, Beijing raised its tax on local governments to 50% from 20%, while local governments continued to be burdened with 80% of expenditures. So, Beijing allowed the local governments to control the banks. The developers get loans from the banks to lease land from the government for 40 years. (No one owns land in China.) Then the developer “pre-sells” the condo to individual buyers to construct the condo. Then the developer takes that money and gives it back to the government to take out another loan to lease more land.
A fraction of the money goes to actually building anything. Most of the money goes to the government. So, for instance, in 2020, 60% of the money of “homeowners” went to the government. Out of $100, $48 pays the government for the land, $12 for taxes, and roughly $30 goes to construction. About 50% of the local government’s operating budget comes from leasing land. This is an incentive for the government to raise the price of the land. In the last ten years, the price of land has increased 250%. This process has transferred debt from the local government to homeowners via individual mortgages. Mortgage debt to GDP rose from 16% in 2011 to 34% in 2021. Household debt was 5% to GDP in 2000. Now it is 62%.
This crisis affects everyone in China, both the poor and the rich. In essence, as much as 90% of bank assets are tied up in land leases and development projects serving as milk cows for local governments to pay the onerous 50% tax to Beijing - a tax they cannot pay.
Couple all of this with the fact that industry is dying. How are the Nationals going to buy something if they don't have a job?.. Lastly, with all of the high tech disappearing, and the younger generation being highly educated, they don't want to do factory work for much lower pay.
They may not have s choice.
industry is dying? everything continues to be made in China.
Excellent points
Huge international companies moving out of China will take years so this will not be over this decade. Eventually their mass of unemployed youth will have to take jobs they are overeducated for. Unfortunately as desperation builds I suspect we'll start seeing a lot more digital theft coming out of China targeting people in the West, a lot more phishing scams, etc.
How the hell shall local governments buy those appartments if they already suffer from vanished tax revenues? They would have to get loans or issue bonds just shifting the debts from one end to another. Additionally, those buildings will never be sold as there were way too many built over the last decade.
it's China, wouldn't surprise me they force people to buy bonds somehow, maybe a ding on their social credit score.
Yes, correct ... "those buildings will never be sold as there were way too many built over the last decade."
Many will be converted and reused. There is a way to do that. Others may just be demo'd, and the land can be reused for something else. Doing all that is ... Cost-Ineffective. However, if that does turn out to be the case, such will still be better than sitting-on spiralling-toxic debt. Government doesn't want to, but what else can they do in the end?
@@LumenMichaelOne Over 300 million Chinese are still to arrive in Chinese cities from rural areas so those empty apartments will soon get occupied.Better to have more housing stock than not enough.
This will be a massive loss to Chinese people because among other things there has been a massive over counting of current population. According to Chinese government authorities this over counting amounts to 100 million. These ghost citizens would be the customers who might buy some of those empty apartments.
Unless it becomes a problem, debt isn't something China cares about. They can print whatever money they want and can do whatever they want with the economy as well. Unless they end up in a hyperinflation spiral, China will just keep doing what China does.
It has to be the biggest ponzie scheme in history.
The dollar will be the biggest Ponzi scheme in the history of our world. But let's hope our generation never finds out😂
@philjoreilly1 describe the dollar being a "ponzi scheme."
@@philjoreilly1Why do wumaos laugh at their own statements?
@@EarthForces The dollar might not be an official "Ponzi" scheme but it's a giant scheme alright... backed by nothing but fake promises, its issuance unconstrained.. its use in a fractionalized lending system furthers the scheme. All banks are functionally insolvent at all times. Social security however is the pure definition of a Ponzi though.
$37 trillion in debt and it keeps on rising. At some point it's going to have to be paid back
You FAIL to recognize the fact that so many of these unfinished buildings are Tofu and unsafe for any occupancy -- doesn't matter if they get finished or not these buildings will not last 20 years.
What a nightmare. Market is literally dying.
Literally collapsing.
Correct. The homebuyer is required to pay on the bank regardless of whether the building are ever constructed, finished, or collapse. Now the questions for bots posing here are quite simple:
1. where is the local government supposed to obtain the cash to build everything to code standards?
2. Does buying the obligations also mean that the local government is going to pay the suppliers and workers who have not been paid?
3. Will the current buyers with the unperformed contracts be relieved of making any payments in a fashion that required payments are held abeyance, without any penalty and resume only when the finished, and code compliant unit is delivered.
4. Will all of the foregoing in 1-3 be done under the economic guidance of the existing PRC rulers, the CCP? I would like the CCP bots answer these questions without calling people names.
Unsafe like uk school and hospital.
Atleast the can build .
Here in uk there's a housing shortage and people living in hotels and told the councils can't help
@@ashbohgan2022 Tsaina has empty houses for billions of people 🥳
In addition to all of this, China has OVERBUILT to the tune of 1.5 to 3.0 billion people MORE than they have. In other words, there is enough housing for 3 to 4.5 BILLION people.
Putting this fact next to the law of supply and demand, combined with a FALLING population, it is hard to see a recovery in this sector.
China has a massive housing shortage where people actually live, and a surplus of half build/poorly constructed spaces in the middle of nowhere.
So the surplus doesn't matter because they aren't fit for living in the first place.
@@HamHamHampster But the assets still exist.. and they will lose worth the more time passes.. so its still long-living financial dead weight :/
Recovery is not possible. Period. There is far too much unnecessary inventory. There has been for over a decade. People have just been dumping money in unnecessary apartments as an investment instead of the stock market or savings or bonds.
@@HamHamHampsterTrue but there are restrictions on moving to those desirable places...
An idea: demolition of older neighborhoods for ...( bogus) infrastructure needs. Or another one : destruction of thousands of villages for ... agriculture land recovery. CCP can do everything they want.
The government, instead of you owning your property is gonna go great! Imagine the red tape to get a faucet fixed!! 😂
The biggest problem is that the AVERAGE worker in China cannot afford these properties, therefore you’re only targeting a select group of people. Those people, who are likely more educated don’t want to assume the risk.
Real Estate was already nationalized in Comunist China. You only 'buy' a lease from the government who owns everything. They can arbitrarily force people to move or shut down people's businesses. Property rights don't really exist under Comunism.
Chinese gov owns all the land that properties are built on. You have to pay to renew the land lease after a certain number of years or u could lose ur house.
Paying a mortgage on a property that doesn’t exist. Wild. Just bizarre.
That is very common in Asian countries. Here in India I personally know ppl who are paying mortgage on property that doesnt exist and might not in future😁
@@hatebreeder999 it should be illegal. It’s an incredibly bad business practice. In most western counties the builder either uses their own money or they get a loan from a bank to do the work and only can sell once it’s done or at least reaches a very high percentage of completion.
There is no fix.The State already owns the land. The State owns the banks that make the loans.
There is no local property tax. There is no income tax. If import duties are raised, this action raises the costs of finished products to be sold in the foreign markets.
If the State prints money to pay for unfinished and non started projects, within a short time, the currency is worthless. If the loans are simply forgiven, the currency becomes worthless. If 100 year bonds are written, no one will buy them.
The rational decision has been made by the scammers, the inside people in the CCP. Get your money out of China. This was done during Covid 19.
Yea the country is really ruined. Only about 10% of the natural water sources are safe for human use. The air polluntion is horrible. They are using more coal then ever and the chinese fishmen are also ruining our Oceans. China belt and road scam is a great for the Chinese to colonize poor African countries.
Most of the FDI are already out of china, but i can see that if china manage to copy Singapore model to public housing it will bring about a change. Most western analyst only have a one track way of thinking.
Saying that there is no fix is ignorant.
@@tomlxyz Only 1 fix and it is to get rid of communism.
there isn't a fix that's good for Chinese citizens... half of those apartments are unfinished and noncompliant with even Chinese code due to corruption. We're talking about unfinished concrete, no running water, no fire fighting infrastructure, etc etc..These developers just put a veneer of a complete building up and pay inspectors to look the other way. @@tomlxyz
Imagine buying a residence before it's even built, paying a mortgage, knowing that the residence will never be built or finished, and knowing you'll never get your money back.
Does Chinese law allow them to walk away from the mortgage? Declare bankruptcy? Does anyone know?
That's a nightmare of epic proportions beyond anybody's imagination.
@@ronthered138not only can you not claim bankruptcy your children owe the debt also.
@@joesmith3590brutal. Its also not real “ownership”, right? My understanding is that when you buy a property there, you’re really purchasing a 90-ish year lease from the government. Could you imagine paying your parents debt for an overpriced, leased property 🙃
@@joesmith3590 😳😳😳😳
This will not end well. Excellent video, thank you.
Thanks Joe. Great report. The amount of money skimmed off the real estate market must have been enormous.
Skimmed, You mean bulldozed out , right!
Lol
The market cannot be rescued, their population is in rapid decline , they already have millions of more apartments than they need, that problem will only get worse. Its over. It will only accelerate
Given the sheer size of the Chinese market, the debilitating real estate sickness there could make Japan's lost decades feel like a trifling cold
@@sharon_shaw fingers crossed 🤞
@@MrJimtimslim indeed! An economically weakened china will find it difficult to invade Taiwan and threaten it's neighbors
@@sharon_shaw not necessarily. It might be the ccp's only remaining play. Rally round the flag type move. Declare war, control the people more than ever.
Does anyone actually believe that the Chinese population is even close to the official number.
I’d surmise it’s likely 200 to 400 million less than the official number.
The only thing that surprises me about all events in China is the fact several parties keep ignoring the positive/impressive economic indicators are just an illusion with an expiration date. The subsidies model is unsustainable and will always cause many crisis down the road. Many international parties have (and keep doing it) hyped China's GDP and growth, ignoring the fact Globalization (external investment) and Chinese subsidies are the foundation of those. China remains a project in stilts. They have lots of potential but have to really solve all complex internal problems (corruption, authoritarianism, dubious economic/production model, huge socio inequalities, laws, etc.) so the country can really start moving towards what they can be. That will take decades of investment and, under the current government, I don't see that is possible.
While the roller coaster was going up, the right people were getting rich. You are watching the logical conclusion of runaway corruption. Total collapse.
@@zacksmith5963 Yes, China is doing great... If you are part of the top government.
Ignoring long term results for short results has been been an issue in government and business personal for quite some time, since short term results benefit them, and long term results are either someone else's problem or think could get money out (or at least shifted to different sector, since China has currency controls getting money out of the country).
@@zacksmith5963 😂 All you're good for is laughing at, nothing more lol
CCP China's success is built on.......Chinese citizens savings, foreign investors have majorly left, the CCP is currently issuing 50 year bonds to pay for stuff now! obviously with its 300 plus percent debt to GDP ratio it will run out of all its money before then and we can just watch and wait!?!
Sadly all the apartment's are possibly made from very faulty products plus workmanship. Frightening thought's in purchasing anything in the future.
Obviously they'll crumble before anyone moves in.
Yes. "Tofu dregs" construction.
Furthermore, if the government comes up with a scheme to give money to developers to finish their existing liabilities
How hard do you think those developers are going to work to complete high quality buildings?
Those aren't going to be tofu dreg, those will be Swiss cheese dreg
XJP is a clown running through a minefield.
In metal toe capped boots, whilst wearing a blindfold, and juggling hedgehogs.
Money is not meant to control people rather it is meant to be put to work producing more money for you. You cannot build wealth without putting money in its rightful place.
You're correct!! I make a lot of money without relying on the government. Investing in stocks and digital currencies is beneficial at this moment.
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Reminds me of the property crash that triggered the banking sectors collapse in the USA in 2008 - only worse. It's ironic because there was so much smugness from the Chinese at that time. Now here we are 15 years later....
At least the US was able to get out of the mess without a partial nationalization of the property sector, and the situation resolved itself in few years. It looks like the Chinese are going in a different and more extreme direction.
Well a lot of people in the USA lost a lot because they were greedy ( at least in FL) AT the time you could by a home by just paying interest and like 5% down. Then people just pay the interest on the loan hoping the price would go up by $50k in a year. Well that was not going to last forever. Home right now are again maxing out especially in FL because people cannot afford the insurance which for many is now more then the house payment and other house bills combined.
In the US, it was the private sector that went bust and the government was able to "fix" it. In China, there is no private sector. The CCP either owns or has a controlling intertest in everything. Who's going to bail out the Chinese government? Foreign investments are going for cover like roaches when the lights go on.
The US housing crisis was the result of right-wing deregulation of banks and the overleveraging of people. The Chinese housing crisis is the result of no regulations to begin with and an inferior system where local government is nearly entirely reliant on land sales for local government revenue. In the US, market forces resulted in a housing correction and the banks were re-regulated to prevent another calamity. In China, regulations were placed on housing builders and local governments which triggered their housing crisis. The central government tried to deregulate again to continue inflating the bubble but it was too late, once the curtain had been drawn, everyone already saw what a ponzi scheme the Chinese housing market was.
Another difference was that in the US, the banks were able to disperse losses thoughout the world by selling mortgage backed securities, so the losses were less severe and the recovery was quicker. In China, no such thing exists, the losses are entirely going to be born by the people and the central government. The Chinese housing crisis is many orders of magnitude worse than it was in the USA. It took the USA nearly a decade to really recover. China may never recover, their problems are structural and based on their inferior system of governance. Chinese people are so arrogant and brainwashed into thinking they are superior that they'll do nothing to fix their structural problems, and that sums up China in a nutshell. The whole thing will have to collapse and come crashing down for real change to take place. China is historically VERY unstable.
Well the US did also step in with the TARP programme to buy the bad mortgages and securities. They actually spent 426 billion USD on this. Government intervention is the only way to deal with crisis in this scale otherwise it just gets worse and worse. That’s why the Great Depression was so bad. It’s good that the CCP are stepping to help bouy the market
Well, both Fannie Mae and Freddie Mac are government-sponsored agencies, so a large part of the rotten loans ended up on the US tax payers.
IIRC, there's also the major issue of local governments relying on land use sales to real estate companies as a large portion of their general revenue.
This has substantial ripple effects.
The CCP really shot itself in the foot. 🤣Roll out a policy that limits borrowing for real estate developers. Developers collapse leaving tons of unbuilt properties that people have mortgages on. People stop paying mortgages. Banks foreclose on nonexistent properties. Property markets and confidence crash. Local governments reliant on property prices can't pay their debts and finance their operation. Why in the world they would think this was a good idea is beyond me. 🤣🤣
@@zacksmith5963talk some amount of sense just for once 😂
@@zacksmith5963lol you're pure comedy at best 😂
A government interfering in a large market. What could possibly go wrong? Has this ever worked? Anywhere? I watch with morbid interest.
The best can happen. Better then leaving a large market complete unregulated. Only idiots believe in free markets. Chinas real estate had the freeest markets ever, even free from money.
Yes, look at the American new deal.
Yes, in the US. Remember TARP and the Emergency Economic Stabilization Act. Of course it added trillions to the national debt.
@@michaelwilson9921except those programs were paid back. There is also the other side of the coin which is the total disaster that would have come from the collapse of the US banks. The failings were in one not focusing more on bailing out everyday people and preventing from the get-go the stupid gambling happening within the real estate market.
Also, I would imagine the surge, and Obama putting Iraq, and Afghanistan wars on the books was a far larger contributor to the trillions added to the debt.
When greed sinks a nation.
....... and hubris, and stupidity. What a mix.
Corruption too.
Economic fantasy
Not greed per se. Economic policy to overbuild, thus creating jobs and generate taxes.
Similar to but not exactly like the '08 real estate bubble meltdown in the US.
Joe Blogs,, thank you!!!!! love the work and love that you keep it coming
This is how the end starts, ask Russia 😮😅 so local authorities can pay pennies on the dollar for these apt. No matter what this doesn't end well
More great analysis and reporting. Thank you Joe
In a country that has historically been under housed, there are now 100,000,000 empty units. That's enough to house most of the Continental USA.
Imagine all the construction workers without jobs now
@@user-ee7bz3ip2b
No worries.
They will soon have jobs demolishing those millions of tofu apartments.
🙃🤣
Cos they tried to target the 3rd to the 4th tiered cities. 1st and 2nd tiers were enough... But they didn't trust it. So... If they kept to that,everybody would be happy. When they joined the wto.. well.. imagine if that money was used to connect the 2nd and 1st to the 3rd and 4th with roads instead and kept to that. Things might have changed... But that isn't what happened.
100 million units of tiny apartments. Just knock down the wall between apartments and combine 2 tiny units to 1 larger unit. Then you halved the supply to 50 million. The land size where the block of apartment sits on remain the same.
Just finished a book on Chinese history. Even after the imperial period the government had a customary right to seize and manage land!
The our rules of real estate law aren't yet embedded in the Chinese experience.
Not 😯 surprising.
The right to private property is sacred. No nation can succeed without it
It's called invasion....
Chinese history is fascinating, isn’t it? Going back thousands of years.
@@zacksmith5963😂nah keep coping 🤦♂️😂
We own nothing in UK since 1066. Freehold is evidence of that, as the monarch has superior interest in all lands. We all suckers the whole system preys upon our greed snd self interest. It is rather fruitless to laugh at others when UK is in such a parlour state. It is unbecoming and unchristian.
I am truly honored to sponsor Joe Blogs CZcams channel. I will continue to watch and recommend his channel to friends and relatives indefinitely. Joe is da man!
He is a useful resource but far from 'da man'. He wastes a lot of time reading graphs and figures that don't need to be read out. He could convey the same amount of information in a third of the time.
You like blown-out speakers eh'? He should be banned from the internet.
@@robertnewhart3547 What is a 'blown-out' speaker?
Thank you for always providing comprehensive, data-based and impartial coverage of those processes. It helps me a lot in better understanding causes and potential effects of current events
So you have to maintain the mortgage on your unbuilt apartment so the unbuilt apartment doesn't get repossessed? Crazy.
@@zacksmith5963So you prove something you come out with for once in your life lol 😆
Hi there. Just for you to know. In Chile you can buy a house in green and white modality. Green is a project that has started but is not yet finished. White is a project that has not started yet. The buyer receives a discount for the risk, being of course higher discount for white modality. So what companies do is to set portions of the building to be sold under each modality so they can have liquidity if necessary.
It’s funny how we want to buy when prices are rising but not when they are falling.
the ol’ ‘money talks, BS walks’. lol
How can the CPP afford to buy the collapsing real estate market and also commit to a costly war against Taiwan? Are they just printing more money?
Prove it
Also taiwan is part of china
it’s all lies smoke and mirrors, China is totally hollowed out with debt.. the illusion of greatness and a huge labour market just reinforce the confidence illusion…
No matter what holes they plug, it doesn't change the fact that there is ZERO land ownership in China. It's just a 70 year lease no matter how much is payed for it and they don't care how unattractive that is while trying to bring in foreign buyers. Foreign buyers are the only thing that can right the ship and every day there's a thousand other reasons to not invest in anything Chinese. And that's not even mentioning the poor building quality that many of these properties are already showing signs of without having any occupance. Chinese real estate is doomed completely.
Your videos are well done. I enjoy the length and detail. It’s nice to visit and to read the comments!
Having the local authorities purchase, finish, and sell a discount sounds killing the goose laying the golden egg.
Unfinished apartments get completed at a loss. Selling the apartments cheaply knocks out future demand. Developers lay foundations for even more unsellable apartments, and the problem has grown bigger.
That's exactly like throwing good money after bad.
@@zacksmith5963you prove the nonsense you come out with first lol
@@zacksmith5963 still nothing sensible at all lol
@@zacksmith5963 says a lot about your tactics, make it up as you go along lol
@@zacksmith5963 yup definitely a mindless nobody
❤ your work, Joe!
In your summary, I think it's hard to separate out the different problems because they all work together to create a large problem.
1. WAY too much housing was built whether it's unfinished or not, hence the ghost cities, but there are ghost buildings in many cities too.
2. Speculation means citizens own/are paying on multiple housing as investment but there aren't buyers for this because the population drop and once again, 1. WAY too much housing was built.
3. People aren't buying because speculation drove prices up WAY too high (yes, a lot of "WAY TOO" because it's true). But they also aren't buying because most people already have a place to live and they know buying a place is a bad decision right now.
This is a circular problem here.
China has to remove a LOT of housing from the market, not by finishing incomplete housing and nothing else. No, it REALLY needs to remove about 50% of the over-capacity because the Chinese population isn't growing, and in fact it's shrunk regardless of what the CCP publishes. They need to bulldoze ghost cities and there's more than one, but I think the worst is Xi's pet project where they built a city in a flood plain.
So, get rid of the ghost cities and move the people who are there to govt. housing in another city. Then move to the Singapore model. Don't mess with trying to get the banks involved, or fixing real estate companies, just turn all this into govt. housing. This is their best solution. They can then assign a manager who has to plan RESPONSIBLE growth. Because the housing would be govt. housing (it really is anyway), they can keep all speculation out of that market and allow supply to meet demand.
The CCP could put this housing manager directly under the Dictator, whatever his title is. They'd need a small group to do analysis around the country and interface with local govts.
What the CCP will need to work out is new revenue flows because the local govts. make money off of land transfers, but if the CCP simply says that all housing is govt. housing then the land transfer model dies, and it should die.
Singapore does an outstanding job with this model. China could too if they can manage to get corruption out of the handful of people that would manage Chinese housing, but the best way to do that is those people aren't responsible for getting money out to construct the housing. They only say what needs to be built, and then a funding package is made by the CCP that goes DIRECTLY to builders. This funding mechanism would also have the engineers needed to making sure that construction works properly. So, get ALL that out of the hands of localities, and have professional and minimal bureaucracy to deal with housing.
Thanks!
Pay before you build is a recipie for problems
One of the problems with the CCP plan to have local governments purchase the units is local governments, by and large are bankrupt. So unless the banks give them basically free money, they can’t afford to buy them. And then the banks won’t have the resources to make business loans.
Thanks! Great job and info Joe!!
Thanks
18:58 Or more accurately, the property developers began to spend money on things other than their core business and so ran out of cash to run their core business i.e. building properties.
Maybe the money has been diverted to construct all those islands in the South China Sea.
Why would banks lend against apartments that don’t exist? Why would borrowers pay monthly payments on non-existent apartments?
Thanks, Joe. Your feeds are relevant. Keep up the great work!
even with a billion hands of "free" labour, you should stop digging when in a hole.............
"We don't fear what lies beneath! We can never dig too deep!"- Wind Rose "Diggy diggy hole".
They can't really, realistate is pretty much the only asset typical chinese citizens hold.
Single child policy catch up to them
It is never explained why the Chinese authorities decided 2-3 years ago to adopt a "Cold Turkey" approach and reign in the property sector.
If the sector was 25% of the GDP, the property market may have increased their debt but what benefit were the Chinese authorities hoping to derive from then crippling the sector?
It seems to be self-inflicted blow to the economy? If increased debt was the problem, were there not solutions that would have brought the debt down, but not caused so much harm to the economy?
Yes, they seemed to have panicked but they had to do something. The Chinese housing market was - and still is - effectively one huge Ponzi scheme and the longer it went on, the harder the hit would be when it eventually collapsed.
They saw the actual stats and they panicked. They were hoping to deflate it nice and easy but since everyone cooks books they couldn't know what they were about to unleash. Or maybe they wanted to punish developers like they did to school owners and tech billionaires. Who knows.
Could there be a plan by design to split up China, just like what had happened to the former Soviet Union?
They had no choice. Birth rates were collapsing too fast. They saw they had to make real estate dramatically more affordable for young couples. It’s the same reason they obliterated the after school tutoring industry; to remove that burden for young parents. It’s all about creating birth rate which is the biggest issue that China faces by far.
You need to understand.. why they are doing this. Cos the regional gdp is what would get you promoted upwards. So.. they borrow to boost their own jobs basically.
Hey Joe, China has a 3b dollar a day trading surplus. Most of that surplus is a trading deficit for the US and EU. In other words don't worry about China. There is plenty of other countries with real problems to spend your time on.
From what I’ve seen, most of these apartments are so poorly built that it wouldn’t matter if they completed them or not. What a mess.
Local government? Yeah, no
Buying a new house in China is guaranteed to lose you money. Still, as Xi said houses should be bought to live in, not as an investment. Not much of an incentive to buy is there?
Oh but buying foreign land, building unaffordable apartment buildings in the US, doing illegal things to secure city building bids in CA LA is what Xi is doing
I keep wondering how they'll ever come out of this rut. At first I was like "serves them right for being too greedy", but now I'm genuinely concerned especially for ordinary people..
Another well-researched, insightful episode. Warmest compliments. Thank you, sir. :)
Buy with what money?
All they can do is to act as a man in the middle, have the buildings finished and resell in a declining market.
In other words, print money
With what money do communists ever buy anything? With other people's money and FUTURE people's money (ie. debt).
Yes, but it also doesn't matter if they bring in new folks into cities, and industrial jobs, and just tax them, and recoup the money over time. China already heavily manipulates everything anyways, and we have no idea about the specifics of the books.
Technically local governments can get whatever they want from the central government, but it was easier, and faster to do it through shadow banks, and land sales. The central government has to try, and keep the house market alive as it is pretty much the only asset for the everyday person.
@@zacksmith5963lol as if you've ever proven anything lol
@@zacksmith5963 Prove what, that countries continue existing until they don't? the Chinese government will just do whatever it needs to, to continue.
Hahaha hahaha hahaha hahaha...
Thank you for your excellent work!
Is it true that not a single Chinese person actually owns a house because the building land always remains in the possession of the state?
Yes, but the same is true here in America. Skip paying your property tax and see what happens
Authoritarian rulers are not good at predicting market forces. Somebody should have pointed that out to Karl Marx.
So the US has authoritarian rulers? Remember TARP and the Emergency Stabilization Act? Perhaps the politicians in China are only in bed with big business like those here in the US.
And Justin Trudeau.
Agreed. Look at North Korea, Venezuela, Cuba, Russia, Iran and of course China.
Agreed. That's why we had the Subprime crisis in the US that created the GFC.
Marx was not authoritarian. Some who followed him sure were, but Marx was more libertarian in his beliefs than most capitalist militarist/neocolonialist/police states like China, Russia, or the USA are in reality.
Local authorities cannot afford to buy properties
In a communist system the local authorities will take the properties. The bank directors and the governments are roughly the same thing.The CCP is slipping back to it`s "roots".
This will be a facade of a real estate market, like in in democratic countries.The government will confiscate half finished real estate, force the banks to take the depositors money and finish what they can or want.
Over all, people with money in banks will be robbed one way or another. The governments will get improved land instead of what they had.Who knows, they might try to sucker people into doing it again.The only safe way to hold on to savings is gold. Unless the government declares it is illegal to hold gold and fines you or takes it.
they can if they are free
@@zacksmith5963yes with your tofu construction 😂
Yeah, I don't get that point either, all we have heard during this whole debacle is the local governments are in massive debt largely financed by selling off land to developers. So if there's no new construction they don't have any revenue to exist, much less to buy up worthless properties.
If local governments buy empty apartments, what are they going to do with them? Sell them to the general public? If the public won't buy them now, why would they buy them from the government? The only way they can move the apartments is to sell them at a discount. This action would only drive the market price down and the government would have to lower the price again.
China should offer immigration to its African allies, with all this housing available it would be win-win. Help African refugees have a destination, and help Chinas slowing economy with new low-end workers and consumers. why not?
The scandal isn't that borrowers are paying a mortgage on properties that haven't been built. The scandal is that the money was lent under these circumstances.
Equally wrong is that the same bank lending to the buyers are using these payments to lend to the developers not to finish the build, but to acquire more property from the local government goons.
This isn't a bailout for the developer OR the mortgage holder. It's a way that the corrupt local governments can look virtuous while bailing out the banks. Socialists make mafias look like girl scouts.
The state (CCP) will buy the properties from the private sector for 10 cent on the dollar which is then converted to regulated "affordable housing". A great deal for CCP.
The housing isn't where the jobs are. Nobody in their right mind wants to move into a ghost block
i’m sure your correct. get the private sector to build them let them go bust and you have free finished property.
@@zacksmith5963 I know as I lived in China for 8 years but the price is still 10 cent on the dollar.
@@zacksmith5963lol oh the irony 😂
@@mr.bullion6786yup you've got that right
That tells you their economy is toast. More government interference can only make things worse.
China is still growing.
So you are saying that the US government is also toast? TARP and the Emergency Stabilization Act during the GFC. Then all that came with COVID. Now the Inflation Reduction Act. So much interference that debt is going up $1.4T a year. $34.6T total.
@@amraceway Growth is the challenge they are experiencing. Communism is based on government ownership of the means of production, but it does not handle market forces well. Cuba seven decades into communism is on its knees; North Korea is struggling while the other half of the nation, South Korea, is prospering. Laos, is doing okay but is still heavily agrarian. Vietnam is technically communist but has adopted enough capitalist principles to make it a successful country. It's a wild world.
@@flagmichael I would not compare Cuba to China, China under socialism has achieved economic miracles. The bad press it now gets is sour grapes. The West has all but given up making things, certainly the country I live in has. Vietnam is a socialist country that has but a fraction of China's manufacturing capacity. China has realized the weaknesses of the West and successfully exploited them, much to the USA's displeasure.
@@flagmichael
North Korea’s economy was growing much faster than South Korea until the 1980s and North was better off than South until the 1990s.
If you have already overbuilt how will stimulating more building fix anything long-term 🤔
Excellent video! Thank you for keeping us informed about the housing market in China.
@Joe,
The term is LEASE.
No one can buy/own property in China.
A mortgage vs lease agreement are very different concepts.
You should have clarified this at the beginning.
Edit: (sorry Joe, I subscribe to your channel and👍is my default. But in this case I had to take it back and 👎due to your use of words that simply don't apply in mainland China)
Great report
Where do the local authorities get the money? They all have enormous debts!!!
From the central government, who can create the money.
Same place we get it.
I know that I had to get an appraisal on the house that I bought before I could get a mortgage. Hard tp appraise something that doesn't exist. Harder still to imagine someone loaning mortgage money without any collateral.
The madness of it all. They induced massive pain via the 3 red lines in order to deflate the bubble, only to turn around and blow until they're blue in the face in a futile attempt to re-inflate it. Genius! 👏🏻👏🏻👏🏻
Good feedback
Thanks, Joe. Excellent report. Very informative. Also interesting is that many people in China have had the banks remove money from their accounts or limit how much they could withdraw from their accounts, I wonder if that is not affecting the willingness of Chinese people to deposit money in the banks.
Super interesting analysis
I heard that local governments are buying appartments so that developers can finish them and offering them in exchange for contracts on other unfinished apartments but no one wants to take up the new contracts in a falling market and the apartments are not “finished” to a satisfactory quality.
In the UAE, going into debt to buy apartments that haven’t even been built yet is known as ‘off plan’ … this obviously suits almost everyone while the economy is doing well, taxes are low, and property prices are on the rise . Generally the cost of living is high, but taxes are supposedly low. However, what happens when more taxes are introduced, both overtly and indirectly? the cost of living remains high, and ‘service charges’ on properties start to rise, and there is a realisation of the fact that buildings in that environment do not cope well with the extreme weather well and the ‘owners’ start to divest themselves. Then a really rather bad situation is likely to develop , not as bad in absolute terms as that in China, but for quite similar reasons - a government driven expansion of real-estate, without anyone operating the slide-rule .. a bad outcome is inevitable, and it won’t be pretty … in my opinion… so China is not alone in making these types of mistakes…
That second hand and newly built chart is a bit misleading. Most of the apartments that are sold as "second hand" have never been lived in and are in fact, brand new even though they might have been purchased some time ago. On top of that it takes an extraordinarily long time to get the title to a residential property - even when you paid for it a long time ago (the process is hair-raising and involves an extraordinary amount of trust in the builder). Many properties are sold on before the original buyer actually gets the title documents.
My wife and I own 4 apartments in China (which we are very happy with by the way - good locations). My wife is a chinese national. Only one of those apartments has ever been rented out and we and my wife's family have used another one of them. The latter one we sold last year and we just sold the one that has been rented (no profit, but no loss either). It all depends on the location because there are actually restrictions imposed on sales in some areas - ie in Hainan for some years only residents can buy apartments - which has killed the demand (because thanks to the hukou system that severely limits the market; the hukou system means a lot of "illegal migrants" in the cities need to rent because they are prohibited from buying. In fact "illegal migrants" in the cities are prohibited from renting, but out of desperation landlords tend to turn a blind eye to that) - and that distorts the ability to sell them. Those kind of distortions are all over the country.
And, Joe I am so happy you are now pronouncing Yuan correctly. As a westerner who speaks mandarin I was finding your previous pronunciation really grating.
By the way, when you buy property in China its not the equivalent of western "freehold". Its actually only a purchase for 50 or 70 years - you own the building but not the land. After that period the land reverts to the state - it should be interesting when that happens! Having said that, the situation in apartment buildings is much better in China because theres none of this levy nonsense that makes apartment living in the west uncompetitive with stand alone housing. I do wonder whether the chinese system of making the builder responsible for those ongoings is viable though. Its a bit of a nutty system.
Incidentally, renting out an apartment in China is a bad idea. The returns are non-existent - like the equivalent of $5 a week. Plus you face the problem of dodgy agents telling you that theyre renting your apartment to a 20 year old university student and you then find out they really rented it to 10 construction workers, who wrecked the place. Thats one reason why many people just dont bother unless theyve set themselves up to make a living as a professional landlord. If you buy a residence in China youre usually either looking for a capital return or you intend to live in it or use it somehow. Without the possibility of a capital return the market for investors just instantly dies.
My personal view is that the chinese authorities will do everything wrong but will eventually be forced to start deregulating the property markets (note the plural - there is no 'national" property market in china right now) and they will also need to start deregulating the hukou system (which they have already started doing). Once they do that they will spark a - legal - rush to the cities and city prices will stabilise but rural prices will stay low. They will also need to clean up their tax system, which is abysmal.
Great video, Joe. always look forward to your next. Once you asked for video suggestions. I would like to see one about Red Lobster and how 'all you can eat shrimp' brought them down. Or a series about such restaurant chains, the issues they have, and how it is looking going forward.
Take care.
Debt against non existent assets is worthless and should never be issued
5 or 10 years ago, it was still a fraud, it just had not popped yet at the time.
Love the bit at the end.
You know it is wonderful to see so many people who enjoy learning by data driven reporting. I felt like people in school never appreciated the work teachers or presenters did so that the information was nicely organized thereby understandable.
aw that dog clip at the end was amazing to watch! thank you for the video!
When a person buys a house/condo in China, they only own it for 80 years. (What is called leasehold in the UK.) Then ownership reverts to the landowner, ie the government, if it hasn't fallen down by then as they're so badly built. So they're actually just paying for a lease and a pretty short one at that which is shameful. What a mess their property market is in.
All properties are leasehold only and will need to be handed back to the Government in 50y/s time!!!!
Thx Joe
Bot
@@zacksmith5963Lol says a crying bot lol
Will be hard to build demand when you have oversupply
China should offer immigration to its African allies, with all this housing available it would be win-win. Help African refugees have a destination, and help Chinas slowing economy with new low-end workers and consumers. why not?
Weird... mortgages here have to be attached to something.. like a house. Don't think mortgages for completely unbuilt and only planned homes are a thing. Then again, I never shopped for such a thing
Hey - a new thank-you formula in the beginning there. I right liked this version.
Tks Joe.
Cda.
Good stuff
There is a place where you can take a mortgage on a not-yet-built property in the EU. It is quite often the case in Bulgaria
Same risk over here, but EU is full of corruption😅
We are living thru some tough times. Its only beginning.
Good job
Love the Dog listening to the baby Ive never seen that before :)
Since most properties in China involve a pre-paid deposit and mortgage payments before completion of the project, this will either mean seizure by the government of whatever the customer has already pain into the property, or will involve very few properties.
I like your background decor ❤
There is no private property in China.If the government takes the property back will it dole out the money to the small home buyer who was robbed?Or will the local governments take in more money and repeat the process?
I wouldn`t be surprised if the government helped along the crisis, knowing that they could get free labor and free money from the people.Local governments got payed for the land at the beginning.The major developers paid bribes and threw a party and ran out of the people`s money.Now they will all try to get more with even more improved value.
In china u don't get robbed as govt takes control of policies
In China all property ownership is via 99 years leases - the state is always the owner. In the UK, USA and Australia the State/Crown also basically owns most the land (except for some rare allodial title/royal land grants). Most people do not realise when they buy a property, all they are basically getting is a lease that does not have an end date and can be inherited/sold. That is why in Australia for example when a state decides to compulsory acquire property for a road or other project and people try to stop it in Court, they ALWAYS lose.. as it is not their land.
17:32 I beg to differ. All these developers are underwater in debt. Any money they can get - they can either abscond with it and show up at the Mexican border or pay down on their debts .... and then show up at the Mexican border. Remember with the shrinking population, the market is saturated. There should not be any encouragement to build new properties. Instead, complete or demolish what is unfinished. And set up a match making one-stop shop for people who bought extra apts and want to get rid of them to those who do really want a property. The focus should be stabilization and not growth.