Do China’s ghost cities offer a solution to Europe’s migrant crisis?

September 18, 2015
ghost_city

These vacant apartments in the Pujiang area of Shanghai appear to be unwanted supply for non-existing demand but they’re actually new homes for residents who were evicted from the World Expo site. WADE SHEPARD FOR REUTERS

Nearly 150,000 Syrian refugees have already claimed asylum in Europe and tens of thousands more are flooding the borders in search of places to live. Meanwhile, in China, there are millions of new apartments sitting completely empty and entire sections of freshly constructed cities that are virtually uninhabited. This disparity between unmet housing need and oversupply has not been lost on many around the world, and after writing a book about China’s ghost cities, I’ve recently found my email inbox getting flooded with suggestions such as this:

Do you think the Ghost Cities could be used, even as a temporary situation, to accommodate those displaced from Syria? It seems that many of the cities are just waiting for a community and here is a community that needs a city.

This sentiment is widespread across popular social media platforms, and on Twitter alone roughly 7 out of 10 results for searches pertaining to China’s ghost cities reveal tweets recommending the mass movement of Syrian refugees to these under-populated urban terrains.

 


Realistically speaking, this suggestion isn’t worth analyzing with much depth. The political quagmire of relocating masses of people across the planet — not to mention the fact that refugees need more than just housing — means that this is a far greater ordeal than simply assuaging demand with supply. It does shed light, though, on the gulf that exists between the predominant international opinion on China’s so-called ghost cities and their present reality.

Even though there are between 20 and 45 million unoccupied homes across China, which account for roughly 600 million square meters of uninhabited floor space — enough to completely cover Madrid — these places are not the urban wastelands they are often posited to be. While many of China’s new cities and urban districts are deficient in people they are not deficient in owners. Nearly every apartment that goes on the market in China is quickly purchased, often at exorbitant prices that commonly range into the hundreds of thousands of dollars. Far from being unwanted infrastructure that could seamlessly be doled out to refugees, those arrays of vacant high-rises are actually the proud possessions of people who paid a lot of money for them.

So why would anyone spend incredible amounts of cash on houses they do not intent to use?

All over the world, the value of property extends beyond the utilitarian function of being a place to live. Real estate is also a vital economic entity that presents an avenue for investment as well as a way of storing wealth — a use of property that is taken to the extreme in China. “Many Chinese investors are buying property based on expectations of appreciation, and that it is a solid, safe investment that they can easily understand,” said Mark Tanner, the founding director of China Skinny, a Shanghai based marketing research firm.

A full 39 percent of individual wealth in China is kept in housing, and, according to Nomura, 21 percent of China’s urban households possess more than one home. The reasons for this desire to invest in housing often results from a lack of better options. China’s banks pay negative interest and are becoming even more unattractive with the recent wave of currency devaluation. Wealth management products are not fully developed and are highly regulated by the government, and the stock market is viewed to be about as secure as a casino.

A huge portion of the homes that are purchased in China function very much like stocks or a trade-able commodity. As an incredible number of new apartments are sold as unfinished concrete cavities without any interior fit out or even windows, they are in no way immediately livable. Strange as it may seem, they are very actively bought and sold in this bare-bones form. In fact, investors often prefer them that way. In many ways they are purely economic entities, quantifiable placeholders of value that are traded on the open market akin to precious metals. Just as one doesn’t need to mold a piece of gold into something usable, like a piece of jewelry, for it to have value and an economic function, an apartment in China doesn’t need to have people living in it for it to be economically viable.

“Empty units leave flexibility for quick sales in a changing market or need to cash in quickly,” said Barry Wilson, the founding director of Barry Wilson Project Initiatives, a Hong Kong-based urban design firm.

Another reason for the sheer number of unused apartments in China is the fact that there is often little financial incentive for owners to do anything with them after purchase. There is no yearly property tax in China, so vacant properties are not a financial drain on their owners. While the potential returns that could be had from renting them out (1 percent or so) is often not worth the hassle — especially because it costs tens of thousands of dollars to construct the interiors of new apartments in preparation for tenants. This is combined with the fact that Chinese homeowners, especially investors who have multiple properties, are remarkably un-leveraged. According to Mark Tanner, over 80 percent of homes in China are owned outright. This means that most homeowners, especially the big investors with multiple properties, generally don’t have any mortgages to pay off or any other leans, so there isn’t as much financial pressure to make a profit from these homes in the short term.

Additionally many empty apartments have owners who intend to occupy them at some point. A huge number of China’s new apartments are located in new development areas, which are, by definition, new. The thinking is if you buy property in these emerging new areas early, you can get a better price. So it’s common for people to purchase homes in places that are not yet ready to support a large population with the understanding that they won’t be able to inhabit them for many years. As these new urban developments grow and evolve, more and more people eventually move into their homes. According to a report by Standard Chartered, between 2012 and 2014 the occupancy rate of Zhengzhou’s Zhengdong New District — prominently featured in a 60 Minutes segment on ghost cities — doubled, while the population in Zhenjiang’s Dantu district quadrupled, and occupancy in Changzhou’s new Wujin district increased more than twofold. As new areas develop, the facilities, institutions, infrastructure and businesses they need to be attractive to residents, vacant homes begin filling up as ghost cities come alive.

So, while China may have tens of millions of empty apartments, it doesn’t mean that they don’t serve an economic function, it doesn’t mean that they are unwanted, and it definitely doesn’t mean that they are just laying out in some urban no-mans-lands ripe for the taking.

23 comments

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Interesting, did not know.

Time to invest.

Posted by GitmoreDolluhrs | Report as abusive

I’m no fan of the PRC but why on earth would they want to import such a mess as massive muslim immigration?

Posted by GetReel | Report as abusive

Why on earth would the Muslim immigrants want to go trade anarchy for a dictatorship?

China’s not exactly known for treating its ethnic minorities well.

Posted by EndlessIke | Report as abusive

Maybe they could live in Trump’s empty hotel rooms. He seems to know how CNN should be managing THEIR profits and money. Maybe we could help Trump out with some ideas on how to be a more charitable and generous person himself.

Posted by Solidar | Report as abusive

China is already fed up with the Uyghurs but once the Germans find themselves uncomfortable in the Motherland they will be welcomed in China.

Posted by Macedonian | Report as abusive

20,000,000 to 45,000,000 vacant housing units would imply a gross vacancy rate of 4.6% to 10.4%. The US gross vacancy rate for housing is about 13.4%, with a low of 8.7% in California and a high of 25.0% in Maine.

Posted by Cismontane | Report as abusive

Why would China import this problem?
What will China profit from doing this?
With the Uyghur’s already creating problems why would they add to their own problems?

Posted by SR37212 | Report as abusive

EndlessIke: China is an authoritarian single-party state, not a dictatorship. If you haven’t noticed, China changes its top leaders every decade or so.

You may want to update your civics knowledge.

GitmoreDolluhrs: You’re a bit late to the party. Real estates prices in first and second tier Chinese cities are already sky high. Some opportunities still exist in third or fourth tier cities but those are less attractive destinations. It’ll be harder to achieve 3 to 4 fold return which real estate investors saw in cities like Shanghai, Beijing, Shenzhen, Hangzhou etc during the last 15 years.

China has 1.4 billion people with a still ongoing urban migration wave. Ghost cities don’t tend to stay empty for very long.

Posted by blah77 | Report as abusive

Right, because the Chinese just love muslims. Oh wait…..

Posted by t0mmyBerg | Report as abusive

why China would get involved into mess created by US?

Posted by Jingan | Report as abusive

So long the immigrants are non-muslims I think the Chinese will accommodate them.

Posted by waryobserver | Report as abusive

A more realistic solution is to hire Chinese companies to build houses for these migrants. Look at how fast they construct a building:

http://www.theguardian.com/world/video/2 015/apr/30/china-build-57-storey-skyscra per-19-days-timelapse-video

Posted by passingbyby | Report as abusive

China? Help people? This is a country that uses a good chunk of the world’s resources, produces a huge portion of the world’s pollution….

and has never put a red cross van or ebola clinic, or children’s vaccination center anywhere in the world. China is a selfish country. Not a helping country.

Posted by Solidar | Report as abusive

Solidar: Not sure if you are just uninformed or blatantly lying about China’s supposed non-involvement in the Ebola outbreak in Africa. China has built at least 3 clinics/treatment centers, sent over 500 personel and donated 120+ millions during 2014 in response of the outbreak. Those figures are more than what developed nations like Japan, France, Australia, Canada and others contributed.

All of the above information is readily available on the UNDP website. Do some research next time before making uneducated and slanderous comments.

Posted by blah77 | Report as abusive

@Blah77, you are correct. China did open 3 clinics on a continent that supplies the bulk of its oil. Very generous of them :)

Posted by Solidar | Report as abusive

Maybe I’m wrong here, but according this list… Finland gives more foreign aid than China. China is the 2nd largest economy in the world… and is not even in the top 30 for giving foreign aid.

https://en.wikipedia.org/wiki/List_of_go vernments_by_development_aid

Posted by Solidar | Report as abusive

Solidar: While you’re on Wikipedia, take a look at the following page to learn the differences between “developed” and “developing” economies.

https://en.wikipedia.org/wiki/List_of_co untries_by_GDP_(PPP)_per_capita

When you’re done I’ll educate you some more.

Posted by blah77 | Report as abusive

30 million vacant units is plenty developed. Over-developed, most economists (and people with common sense) would say. Thanks for the education though about the ‘economic struggles of poor little china.’ So poor they can’t help anyone else. haha. nice try.

Posted by Solidar | Report as abusive

@blah77, while you’re educating us on the desperate state of China, maybe you could show us the other “developing” nations that are ordering 38 billion dollars in jets at a time.

http://www.reuters.com/article/2015/09/2 3/us-boeing-china-idUSKCN0RM27X20150923

Posted by Solidar | Report as abusive

Solidar: Here’s another thing you fail to comprehend about China with your half-truths and omitted facts. China does not grant “foreign aid” in its traditional form like many other developed nations do. China instead uses concession (below market or no interest) loans through the China EXIM Bank and China Development Bank. Combined together, these two entities even outperform the World Bank. Many countries such as Pakistan, Indonesia, Malaysia and some African nations have already seen significant infrastructure upgrades using the cash provided by these loans.

Posted by blah77 | Report as abusive

Solidar: 30 million units is enough to house 90-120 million people (average family sizes of 3-4). China has 1.4 billion people. Your grasp of basic mathematics and CIA World Book facts is extremely poor.

You can believe whatever you want but I am perfectly entitled to scoff at your uninformed and poorly reinforced positions.

Posted by blah77 | Report as abusive

Solidar: I just have to read this again and chuckle a bit.

“30 million vacant units is plenty developed. Over-developed, most economists (and people with common sense) would say.”

Which economists are you referring to? I work with Private Bank analysts, globally known economists, fund managers, Chief Financial Officers and none of them would dare claim that China is plenty developed or over-developed.

I don’t know where you get your tripe from.

Posted by blah77 | Report as abusive

Blah77 explains: “I work with Private Bank analysts, globally known economists, fund managers, Chief Financial Officers…”

Great. But you didn’t read the article before you commented, did you? The article cites overbuilt housing capacity by 20 – 45 million units. Good global banking analysis though. Thanks :)

Posted by Solidar | Report as abusive