Dream Empire – China’s Real Estate Bubble - DW Documentary

[GeraltofRivia]

My only minor issue with the documentary is that some villagers claim they are not compensated for being relocated. I can be certain about their individual circumstances but generally in China for any residential dwellings (either urban or rural) being torn down for development, the household will be compensated handsomely based on the space of their existing dwelling times local market rate. The compensation can easily turn them millionaires and their dwellings are multiple stories and massive in size.

I saw a story on my local newspaper that a group of street cleaners was made up of farmers in their 50s who were in fact millionaires as a result of their houses being torn down and they are paid for it. They continue to live in the same place (as Chinese are emotionally attached to their land) but like to work. There is no suitable job for them o they work as street cleaner instead.

 

[CHN Bamboo]

 

[Tshering22]

You know, I really admire the Chinese method, speed and efficiency of developing real estate. But what is surprising is the number of very developed, but hardly inhabited ghost cities in China.

What is the use of making so many cities when no one is living in them?

Who ensures the upkeep of all the utilities in those cities?

How does the government plan to instill confidence in people to move to these superbly-constructed cities?

 

[cirr]

 

[GeraltofRivia]

You know, I really admire the Chinese method, speed and efficiency of developing real estate. But what is surprising is the number of very developed, but hardly inhabited ghost cities in China.

What is the use of making so many cities when no one is living in them?

Who ensures the upkeep of all the utilities in those cities?

How does the government plan to instill confidence in people to move to these superbly-constructed cities?

I always found the term “ghost city”..um..interesting (who comes up with it must be quite smart). There are unsold apartments and are waiting to be sold, which primarily located in tier 3/4 cities (minor provincal cities or county level cities). As shown in the figure from IMF, the inventory ratio for tier 1 and tier 2 cities are below 1 year (ie the average time to sell), meaning they sell very quickly. But it takes much longer to sell in tier 3-4 cities. I am not saying it is not a problem if these apartments are not getting sold as they can cause financial hardship to the developer but projects are not sold well in a less desirable location, it is just a basic law in the real estate business.

These days the fine line between cities becomes increasingly blurred in China and there are projects being built between cities because the land price is lower and the developer hope to attach buyers with lower price point. However the demand may not be as good due to long commute. Real estate development are commercial undertaking by private developers. Government can influence them by building infrastructure and amenity but it is driven by market forces determine how individual project perform in the end ( it is not like government can move people into them).

 

[Aryan0395]

My only minor issue with the documentary is that some villagers claim they are not compensated for being relocated. I can be certain about their individual circumstances but generally in China for any residential dwellings (either urban or rural) being relocated for development, the household will be compensated handsomely based on the space of their existing dwelling times local market rate. The compensation can easily turn them millionaires and their dwellings are multiple stories and massive in size.

I assume this is the case everywhere when Govt. takes land for development and provides fair compensation on the basis of prevalent market rates.
There are certain people who make an issue when projects are completed and property rates increase as result of development, then they claim they were paid peanuts. Happens here as well.

 

[CHN Bamboo]

You know, I really admire the Chinese method, speed and efficiency of developing real estate. But what is surprising is the number of very developed, but hardly inhabited ghost cities in China.

What is the use of making so many cities when no one is living in them?

Who ensures the upkeep of all the utilities in those cities?

How does the government plan to instill confidence in people to move to these superbly-constructed cities?

Although developers may make wrong investments and produce ghost cities, if the investment succeeds, the profits will be enough to compensate for the losses of ghost cities.

Besides, China's housing ownership rate exceeds 95%.
Many families buy second and third suites in suburb and holiday resort. This is the main force of real estate sales. And It is also a major cause of ghost cities.

My family bought a house in suburb about a decade ago, but we haven't been there several times.

(Photographs taken the last time I went there. There were few people on the street.)

Real estate contributes only a few percentage points to China's economy. Ghost city is not a big problem for us.

 

[Tshering22]

LOL at jealous Indians opening a thread for this. Need some burnol?

I like your intensity. Have you served in the PLA, Feng?

Real estate contributes only a few percentage points to China's economy. Ghost city is not a big problem for us.

Thanks for clearing the doubt. But do you see a way in which the resources these cities are using, to be redirected towards other parts where people have chosen to stay? Maybe that can reduce your costs for the government.

 

[Viet]

This part especially struck me regarding certain Chinese members in this forum (esp when they accuse/ridicule others of being a certain way without looking in the mirror first):

View attachment 536957

@VCheng @Hamartia Antidote @Joe Shearer @T-123456 @Dai Toruko @Vergennes @jhungary @gambit @TruthSeeker @KAL-EL @Viet @Skull and Bones

China property market follow certain logic, I would not bet against China government. If you want to invest I recommend you to invest in Germany or Singapore. If you have more money to spend and you seek excitement then HK is a good place.

 

[CHN Bamboo]

Thanks for clearing the doubt. But do you see a way in which the resources these cities are using, to be redirected towards other parts where people have chosen to stay? Maybe that can reduce your costs for the government.

But these empty houses/apartments are not joint property, they belong to real estate businessmen.

 

[Mista]

Interesting documentary I’d say after watching it. Upon seeing the title of “China Real Estate Bubble”, I am expecting to be showered by a piece of rigorous and detailed marco analysis on how Chinese RE market is deviated from its fundamental, supported by an array solid data and fact (the sort of attributes that come with everything made by Germans). Instead, I was shown an combination of interview/vblog mainly based on the business life of an “agency” that organizes a band of foreign performers, performes for real estate developers for marketing their apartment, somewhere in ChongQing. My imagination of them traveling around China from the most prosperous coast to the less developed inland, interviewing all sorts of people across the industry from developers, buyers, agents to regulators, quoting the key industry statistics like house price level and growth rate, space being sold, inventory ratio, house price to income ratio, household debt as GDP ratio, RE investment as GDP, etc does not seem to happen. I was left unconvinced and deeply unsatisfacted.

On a self reflection, I probably have an unhealthy obsession of relying too much on data and statistics and tend to dismiss or ignore the life stories that create the data. This documentary does a wonderful job of filling that gap for me.

Lol same here.

I have some statistics here that shows the risk of a bubble though if you're interested.
I assume you can read Chinese.

北上广深四个城市房产总值108万亿，预计2018年全国GDP大概是88万亿，目前四大城市房产总值是全国GDP的122%。
2017年中国房地产总市值430万亿，GDP82万亿，房产总值是GDP的5.24倍。
美国房产总值210万亿人民币（按照汇率6.8换算），GDP130万亿人民币，房产总值是GDP的1.61倍。
日本泡沫顶峰的时候，房产总值是GDP的6.3倍。

Lending of the 4 big banks in recent years:
https://www.bilibili.com/video/av40766879/

http://opinion.jrj.com.cn/2019/01/28094126990222.shtml

按利润排，前15强中，有10家是银行。

Banks and real-estate made up almost 2/3 of the profits of listed Chinese companies:

2017年A股有将近3500家上市公司，这些公司去年的净利润总共是3.3万亿元。

这3.3万亿元里，41家上市银行的净利润是1.52万亿，占所有上市公司净利润的47.5%，不从事实业生产的银行，坐拥全部上市公司净利润的半壁江山。

银行的净利润快占了全部上市公司净利润的一半，但剩下的将近一半利润并非都属于实体企业。

除了银行之外，上市公司里还有房地产企业、券商和保险。

去年，上市的170家房企，实现净利润5135亿元，占了A股上市公司全部净利润的16%；上市的29家券商，实现净利润约822.66亿元，占了全部净利润的2.5%；上市的4家保险公司，实现净利润约1413.86亿元，占了全部净利润的4.3%。

银行、房地产、券商、保险合起来拿走了全部上市公司净利润的70.3%。

剩下的3200多家公司净利润总和不到1万亿元，但我们的四大国有银行的净利润总和就超过了0.9万亿元。

经营4家国有上市银行跟拥有3200多家上市公司，最后赚的钱是差不多的，听起来多么讽刺。

更糟糕的是，这3200多家上市公司的万亿净利润，不一定真实。

因为业绩不好的公司为了吸引投资者，很多都会在报表上大做文章，利润注水。把这些算上去，剩下3200多家公司的利润又要少一部分。

就算我们假设所有利润都是真实的，这些利润也未必都来自实业，因为上市公司还有投资收入。

很多上市公司投资了房地产，2016年的时候，wind有一个统计数据，当时国内有1305家上市公司涉足房地产领域，这些公司的利润里恐怕有不少来自于房地产。

因为房地产赚钱，而资本永远是逐利的，哪里有钱赚，资本就往哪里流。在近几年房地产的牛市里，大量的资本从实业流向了房地产。

2006年我国制造业权益资本投资回报率（ROE）为6.7%，到 2015年变成了5.4%，还没有贷款利率高。

而2008年之后，房地产行业的平均权益资本投资回报率就一直高于10%，哪个赚钱显而易见。

所以很多实业老板也必然“不守本分”，毕竟现在实业不赚钱，与其扩大生产不如把钱拿来买房子。

因为扩大生产不一定能赚到钱，但前两年房价一直都在疯涨，有不少实业公司账面上最赚钱的是投资的房地产。

 

[GeraltofRivia]

Lol same here.

I have some statistics here that shows the risk of a bubble though if you're interested.
I assume you can read Chinese.

北上广深四个城市房产总值108万亿，预计2018年全国GDP大概是88万亿，目前四大城市房产总值是全国GDP的122%。
2017年中国房地产总市值430万亿，GDP82万亿，房产总值是GDP的5.24倍。
美国房产总值210万亿人民币（按照汇率6.8换算），GDP130万亿人民币，房产总值是GDP的1.61倍。
日本泡沫顶峰的时候，房产总值是GDP的6.3倍。

Lending of the 4 big banks in recent years:
https://www.bilibili.com/video/av40766879/

http://opinion.jrj.com.cn/2019/01/28094126990222.shtml

按利润排，前15强中，有10家是银行。

Banks and real-estate made up almost 2/3 of the profits of listed Chinese companies:

2017年A股有将近3500家上市公司，这些公司去年的净利润总共是3.3万亿元。

这3.3万亿元里，41家上市银行的净利润是1.52万亿，占所有上市公司净利润的47.5%，不从事实业生产的银行，坐拥全部上市公司净利润的半壁江山。

银行的净利润快占了全部上市公司净利润的一半，但剩下的将近一半利润并非都属于实体企业。

除了银行之外，上市公司里还有房地产企业、券商和保险。

去年，上市的170家房企，实现净利润5135亿元，占了A股上市公司全部净利润的16%；上市的29家券商，实现净利润约822.66亿元，占了全部净利润的2.5%；上市的4家保险公司，实现净利润约1413.86亿元，占了全部净利润的4.3%。

银行、房地产、券商、保险合起来拿走了全部上市公司净利润的70.3%。

剩下的3200多家公司净利润总和不到1万亿元，但我们的四大国有银行的净利润总和就超过了0.9万亿元。

经营4家国有上市银行跟拥有3200多家上市公司，最后赚的钱是差不多的，听起来多么讽刺。

更糟糕的是，这3200多家上市公司的万亿净利润，不一定真实。

因为业绩不好的公司为了吸引投资者，很多都会在报表上大做文章，利润注水。把这些算上去，剩下3200多家公司的利润又要少一部分。

就算我们假设所有利润都是真实的，这些利润也未必都来自实业，因为上市公司还有投资收入。

很多上市公司投资了房地产，2016年的时候，wind有一个统计数据，当时国内有1305家上市公司涉足房地产领域，这些公司的利润里恐怕有不少来自于房地产。

因为房地产赚钱，而资本永远是逐利的，哪里有钱赚，资本就往哪里流。在近几年房地产的牛市里，大量的资本从实业流向了房地产。

2006年我国制造业权益资本投资回报率（ROE）为6.7%，到 2015年变成了5.4%，还没有贷款利率高。

而2008年之后，房地产行业的平均权益资本投资回报率就一直高于10%，哪个赚钱显而易见。

所以很多实业老板也必然“不守本分”，毕竟现在实业不赚钱，与其扩大生产不如把钱拿来买房子。

因为扩大生产不一定能赚到钱，但前两年房价一直都在疯涨，有不少实业公司账面上最赚钱的是投资的房地产。

The chart of real estate value looks pretty stretched, not sure I will put too much weight on it if they are sourced from a WeChat account.

What I look at is a report from Savills (a reputable global real estate data/research provider ). The total RE in China was valued at 39t USd, about 4 times of GDP. US follows quite closely with about 34t total value.

With regards to exposure to the real estate market, the state owned banks has about 15% of lending exposure related to real estate directly based on an IMF paper. There are additional 10% exposure in commercial loan collateral by land. They are not even close to the mind blowing level of real estate exposure on the big Australian banks balance sheet, which are commonly more than 50%.

I do agree a lot of the things in the article that there is an imbalance in real estate sector and manufacturing in term of return and capital allocation. It is clearly a suboptimal situation that needs to be addressed in the coming years. In a perfect hindsight, there should have greater policy measures that guidelined the market in the early 10s so the price didn’t go up that much that quickly. That being said, that was in the height of GFC and the danger of a full scale recession (thanks all the subprime mortgage) was looking really real. Navigating China through that crisis was the top priority.

https://www.savills.com/blog/articl...aluable-real-estate-markets-in-the-world.aspx

 

[Nilgiri]

China property market follow certain logic, I would not bet against China government. If you want to invest I recommend you to invest in Germany or Singapore. If you have more money to spend and you seek excitement then HK is a good place.

Singapore and HK already done in my case hehe.

Germany I have invested in other ways...more specific company wise though. Real Estate not so much...I tend to be more shy for R.E if I do not know stuff for myself and have good friends network in the area etc.

 

[Mista]

The chart of real estate value looks pretty stretched, not sure I will put too much weight on it if they are sourced from a WeChat account.

What I look at is a report from Savills (a reputable global real estate data/research provider ). The total RE in China was valued at 39t USd, about 4 times of GDP. US follows quite closely with about 34t total value.

Eh, the same institution put China's 2016 total residential value at 400 trillion RMB in another report (page 5).

http://pdf.savills.asia/selected-international-research/2017-china-10-residential-cities-en.pdf

Page 6:
Chinese property has been one of the biggest wealth generators in the world. The estimated value of China’s residential market was RMB350 trillion (US$54 trillion) in 2015, which is 5.4 times larger than the GDP (RMB68 trillion or US$10 trillion) and roughly 33% of global residential values.

 

[GeraltofRivia]

Eh, the same institution put China's 2016 total residential value at 400 trillion RMB in another report (page 5).

http://pdf.savills.asia/selected-international-research/2017-china-10-residential-cities-en.pdf

Page 6:
Chinese property has been one of the biggest wealth generators in the world. The estimated value of China’s residential market was RMB350 trillion (US$54 trillion) in 2015, which is 5.4 times larger than the GDP (RMB68 trillion or US$10 trillion) and roughly 33% of global residential values.

Interesting. According to the footnote, the value is estimated by using per capita residential GFA × population × average rst-hand residential price. I will dig around and see whether I can find the underlying data.