On today’s show we are looking at real estate in China to try and understand some of the factors that have molded that industry into what it has become today.
Private ownership of property in China began in the late 1970’s and accelerated through the 1980’s and 1990’s. At the same time, there was a mass migration from the farms in rural areas to the cities to work in factories.
In North America and Europe, when you buy a new condo apartment, you might give the developer a small deposit to show your commitment to purchase the unit when completed. But in China, buyers give typically a 40% downpayment and then secure a loan for 60% of the purchase price. The developer then gets the downpayment and the loan proceeds pre-construction and the new owner starts making payments to service the loan immediately, even though they might not take possession of their home for another 2-3 years.
Over the last 10 years the population has continued the shift from rural areas to the cities with the urban population growing by 200M people and the rural population shrinking by 146 million people.
So just like in the US where some cities have been shrinking. I’m thinking of cities like Detroit which has lost more than 50% of its population since the peak in the 1970’s, many small Chinese cities are getting hollowed out.
Some estimates put the number of vacant homes between 60M – 80M empty homes.
