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More Than 20% of Homes in Chinese Cities Empty

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China  Beijing  Shanghai  Negative Equity  Property Bubble  China property market  China housing  underwater mortgages  property crisis  vacant homes 

More Than 20% of Homes in Chinese Cities Empty

By - Thursday 12 June 2014

A survey published by researchers at China's Southwestern University of Finance and Economics found 49 million sold but vacant residential units in the nation's urban areas.

The vacancy rate of sold residential homes in China's cities reached 22.4% in 2013, up from 20.5% in 2011, according to the Survey and Research Centre for China Household Finance, which conducted the analysis.

The research was compiled on data taken from a survey of households in 262 counties over 29 provinces, compared with the last survey in 2011 which was limited to households in just 80 counties.

The report concludes that China's property bubble has popped after finding that apart from 49 million sold but vacant units, a further 3.5 million homes remain unsold.

The survey said that vacant homes are more likely to add to homeowners' financial burdens and cause them to suffer losses. If the property market falls by 30%, 11.2% of vacant homes would be in negative equity compared with just 3.3% of occupied homes.

Many Chinese homeowners face negative equity

While most Chinese cities have shown only mild home-price declines so far, many analysts are concerned that sustained price falls could result in more homeowners holding mortgages that exceed the value of their homes.

China's property market is plagued by excess supply in many cities outside Beijing and Shanghai which has led to a correction in property prices. As of August 2013, the amount of outstanding mortgage loans on vacant homes in China reached 4.2 trillion yuan ($674.33bn), the report added.

The property market is one of the most important drivers of China's economy with economists estimating that real estate and related industries, such as steel and cement, account for 16% to 25% of GDP.

Analysts and investors have raised concerns about the massive rows of empty apartments in seemingly every Chinese city, the result of rapid development fuelled by easy credit and authorities' desire for growth. A few analysts have also voiced the possibility of a painful correction if the bubble pops, which has already happened according to the new report.

In recent years, property developers have rushed into the market to build homes, which have been a popular investment as prices seemed set to continue rising. However, the allure has faded since late 2013 as prices began to stagnate and China lifted restrictions on individuals' investments in alternative markets.

Oversupply of property threatens housing market

China's new affluent class are now investing in wealth-management products or in property overseas, leaving domestic property firms with hefty inventories to clear.

Despite oversupply in China's property market, developers cite the relatively low urbanisation rate – 54% in 2013 – as reason to continue to build despite the latest research showing that inventory levels are too high and demand for housing stemming from new urban residents would have only a limited impact on clearing inventory.

A report published last month by brokerage CLSA Research found that 15% of homes completed in the past five years, or 10.2 million units, are vacant. CLSA studied 609 projects across 12 cities in China, a sample that accounts for 20% of the country's GDP.

 

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