China... "its empty, who is going to fill that space"

[sinophile]

Awesome video asking the question if new China is a house of cards.

"Who is going to fill that space," money manager Hugh Hendry asks of a 500m USD building, "whose going to pay the debt its standing on". With a +5% savings rate it won't be the US. Anyway, recommended viewing for those interested.

http://www.youtube.com/watch?v=ektMQGbW3wk

The some dope dub riddim that explains what the developer must have been smoking when he built that building.

http://www.youtube.com/watch?v=G7ZewqHY2Gc

[fooj]

Interesting video. The way I understand it is, the land is not actually owned by the developer, it's leased to them by the local government. The notion of home ownership and property rights in it's totality is not yet a reality in China.

It's the Central Banks that are ultimately assuming this staggering debt load.

[Ordie]

I looked into a condo in Shanghai.
Very risky as anyone can arbitrarily take it away.

There are no legal protections for property investors or owners.

You're better off being a renter in China.

[vinny_121_ND]

If the economy gets better, perhaps businesses will rent. Obviously, during this recession time, everyone is more careful with their money. These are hard times in China.

[Shoplifter]

The way I understand it is, the land is not actually owned by the developer, it's leased to them by the local government.


The developer is the government.

One has to understand that there is a very different set of costs to development in China. The land was almost certainly not purchased but obtained via appropriation and removal of the former tenants, which was done in partnership with the local government.

Did that building really cost $500M like the guy says? Well it didn't cost a fraction of what it would cost in a western city where you would have to pay for the land etc.

But yes China has become full of empty buildings and shopping malls because the domestic economy simply isn't there in numbers needed to fill them yet. It's going to be interesting to see how this all plays out.

[fooj]

The developer is the government.



Thanks for the information. Just to clarify, developers in China are not privately owned businesses, but actually government owned ventures?

[Derbedeu]

Before clicking it, I honestly thought that this thread was going to refer to China taking over Siberia for some reason. rofl

[sinophile]

Thanks for the information. Just to clarify, developers in China are not privately owned businesses, but actually government owned ventures?

In China there are private developers who will lease land from the government. That could be the central government, but its most often the provincial and municipal governments. I believe there are some special areas where title to land is also possible.

The incentives and relationships are such in China that some in government, or the government itself may take a stake in the development in the form of an equity interest, loans or through other means.

Developers and government usually have closely aligned interests.

So, in a nutshell state owned enterprises, private investors and public institutions are all active.

Incidentally, in the US one could argue there is little private land ownership as the obligation to pay property taxes and the doctrine of eminent domain are levers the public sector has on private land ownership.

[fooj]

In China there are private developers who will lease land from the government. That could be the central government, but its most often the provincial and municipal governments. I believe there are some special areas where title to land is also possible.

The incentives and relationships are such in China that some in government, or the government itself may take a stake in the development in the form of an equity interest, loans or through other means.

Developers and government usually have closely aligned interests.

So, in a nutshell state owned enterprises, private investors and public institutions are all active.

Incidentally, in the US one could argue there is little private land ownership as the obligation to pay property taxes and the doctrine of eminent domain are levers the public sector has on private land ownership.

Thanks for that clarification sinophile, I tried looking it up online, but didn't get very far. I was aware that there was some big deal property rights legislation passed in 2007 but it's importance was somewhat lost on me. Land falls into 3 catagories as far as I was able to find out, State, Collective (mostly rural) and Titled land.

During the big land grab, several years ago, when the Chinese markets were overheating, I was reading stories of Westerners going in and buying up condos and such. It sounded kinda tempting at the time, but ultimately way beyond my means to invest in real estate half way across the world. Just wasn't worth it, and rightly so as it turns out.

Cheers