Mindblowing Fact Of The Day: China Has Over 52 Million Vacant Homes

Over 1 in 5 homes (with $674 billion of mortgages) in China stand empty... and if you think that urbanization will fix that, as WSJ reports, a 10 percentage point rise in the urbanization rate (already at 54%) would result in only a 2.6% drop in vacancy rates. China has a major over-supply issue thanks to property developers who had rushed into the market to build homes, which have been a popular investment as prices seemed bound to keep rising. But now, as Vanke recently warned, things are changing and "the golden era" of China's property market are over. The vacancy rate of sold residential homes in urban areas reached 22.4% in 2013 and as new home prices are slashed to move product, a 30% drop would leave 11.2% of Chinese homes underwater on their mortgages...

52.5 million homes stand vacant in China... for context, there are 112 million total occupied housing units in the US and 18.7 million vacant...

And home price growth is decelerating rapidly...

h/t @TimOrlik

Via WSJ,




More than one in five homes in China's urban areas is vacant, and a current housing-price correction is putting additional pressure on the owners of such empty properties, according to a nationwide survey by researchers from China's Southwestern University of Finance and Economics.

 

The vacancy rate of sold residential homes in urban areas reached 22.4% in 2013, or 49 million homes, up from 20.6% in 2011, according to the Survey and Research Center for China Household Finance, which conducted the analysis.

 

...

 

As of August 2013, the amount of outstanding mortgage loans on vacant homes in China reached 4.2 trillion yuan ($674.33 billion), the report added.

 

...

 

In addition to the 49 million sold but vacant units, the survey estimated that China has 3.5 million homes that remain unsold.

 

...

 

Another property survey released 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.

And leverage is a problem...




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.

 

The survey said that vacant homes are more likely to add to homeowners' burden and cause them to suffer a financial loss. If home prices fall by 30%, 11.2% of the vacant homes would be underwater on their mortgages, compared with just 3.3% of occupied homes, it said.

The bulls are not worried...




Property firms cite China's still-low urbanization rate—54% in 2013—as reason to continue to build. But the survey pointed out that inventory levels are too high and demand for housing stemming from new urban residents would have only a limited impact on clearing inventory.

But they should be...




An increase of 10 percentage points in the urbanization rate would result in only a 2.6% fall in vacancy rates, the survey said.

As China Vanke's CEO recently noted, (via Bloomberg)




The “golden era” for China’s property market has passed, according to China Vanke Co., the nation’s biggest developer, which is shifting its focus to homes for owner occupiers rather than investors.

 

“The period in which everybody makes money out of property is gone,” President Yu Liang told reporters May 26 in Dongguan, a southern city in Guangdong province. “Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.”

 

...

 

“He should have seen some signs since it’s indeed difficult to make money now compared with before,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “Growth we’ve seen before is no longer possible and you won’t be seeing blossoms everywhere again,” he added, using a Chinese idiom to refer to the property boom seen in every city.

 

...

 

The growth in the real estate industry will slow and the phase where “whoever buys makes money” is gone...

 

New construction has fallen 22 percent and sales, including commercial real estate, have slumped 7.8 percent this year.

But still - PMIs were both above and below 50 and US equities are at record highs, so what could possibly go wrong? How can China's real estate bubble be on the verge of collapse with stocks around the world so high? (Remember 2007/8 in the US - who could have seen that coming)... shrugging off fears because Chinese property is not so levered and derivatived as US property was... think again... it is the base collateral for so much of the shadow banking system (along with endless piles of commodities) that if it goes the contagion will be widespread (as well as the fact that overseas speculative leveraged capital has flooded in to this trade and now wth weakening CNY, capital losses are growing on what was a one-way trade for years).

Still don't believe they have a problem? As a bonus, here are 10 more charts from Bank of America proving just how bad the Chinese housing situation has gotten. Pay particular attention to chart 10: domestic loans are approaching a negative print - a situation unheard of in recent years.

 

 

And that means Australia is screwed too...

 








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