China building mega cities but they remain empty ghost towns

A recent CBS 60 Minutes report in the US exposed dozens of new cities in China sitting empty – with the apartments snapped up as investments by the nation’s wealthy middle class, then sitting empty as the owners fail to find tenants who can meet the rent.

Financial experts fear the ghost town explosion will lead to a housing bubble burst, following China’s real estate boom which came after the government changed its policy 15 years ago and allowed people to buy their homes.

The middle class saw real estate as a solid investment, more stable than the sharemarket and offering better returns than the banks.

Government laws do not allow the Chinese to invest overseas.

Hong Kong-based financial analyst Gillem Tulloch said while the initial boom provided good returns, he fears the bubble is about to burst.

“What they (the wealthy middle class) do is they invest in property because property prices have always gone up by more than inflation,” he told CBS’s 60 Minut

“It’s the main driver of growth and has been for the last few years. Some estimates have it as high as 20 or 30 per cent of the whole economy.

“I think they’re building somewhere between 12 and 24 new cities every year.”

But the huge growth has let to a glut of not just apartments, but entire towns and has forced the government to bring in a one-apartment law, where people can own just one property.

In Inner Mongolia, developers built the city of Ordos for one million people. But most of it remains empty.

Early last year the BBC reported Ordos was the largest ghost town in China, and that the housing bubble there had already burst.

Mr Tulloch told 60 Minutes China’s government had spent an estimated US$2 trillion to build the cities and to keep the country’s economy going.

“They’ve simply built too much infrastructure too quickly,” he said.

“People are being moved into the cities but that doesn’t necessarily mean they can afford these apartments which cost US$100,000. These are poor people moving into the cities, so they’re building the wrong kind of apartments.

“There are multiple classes of people that are going to get wiped out by this, people who have invested three generations’ worth of savings into properties will see their savings evaporated.”