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Home » Wall Street News

The Chinese Housing Crisis that will Send the World into a Great Depression

Last updated by on 9 Comments

Last month, we learned about the eery phenomenon of Chinese ghost towns – gigantic cities and universities built by the Chinese government to hit inflated GDP growth targets (kind of like a sales rep who spends more than his salary on his company’s products to hit his sales quota).

What was the result of this disturbing and incredibly wasteful trend?

1. An estimated 64 million empty housing apartment units in China that are too expensive for most Chinese families to afford.

2. Occupancy rates in these new cities are at less than 25%.

3. The ‘world’s largest shopping mall’ is almost completely empty.

4. Universities built to accommodate 2.3 million students that have a slightly lower enrollment of a mere 11,000.

Brilliant, guys.

chinese housing crisis

The Get Rich Quick Bug is Universal

If this trend wasn’t disturbing enough on its own, the Chinese are compounding it. It turns out, that just like Americans, the Chinese also love the idea of getting rich quick. They already got the stock buying bug a few years back when the Chinese stock market quintupled in value in one year (yes, I said quintupled, here’s the chart, if you don’t believe it).

chinese stock market

Then, the Americans had to have this little thing called “the housing crisis”, driven by a combination of greedy banks looking to bend the rules to maximize profit by lending people more than they could afford and greedy homebuyers looking to profit in a market where home prices were only seen to go up. We all know what happened next. That bubble completely burst. And the American homeowners were slaughtered.

As U.S. and global markets tanked, the Shanghai Stock Exchange did too, and the Chinese stock owner lemmings were slaughtered as well (see chart above).

The Chinese Housing Boom

Having learned absolutely nothing from our greedy blunders, the Chinese are now one-upping us at our own game.

Chinese citizens have apparently been buying second and even third homes as investments in order to resell them at higher prices in the future. As a result, home sales have surged 25% in the first seven months from a year earlier and prices climbed in 67 of 70 cities monitored by the government in the first half of the year.

The lemmings march on…

In an effort to quell the possibility of the housing market completely caving in under its own weight, the Chinese government has raised the down payment for second mortgages, and about 40 Chinese cities have begun to limit apartment purchases to two per family, or one for non-locals. The government has also asked commercial banks to stop offering loans to third-home buyers.

Like any entrepreneurial society, loopholes were bound to be found. Bloomberg reported that couples were now filing for fake (and sometimes real) divorces, in order to buy more homes. And they are being encouraged by banks and home developers (seeking profit) to find these loopholes in order to do this.

All this is happening, in complete denial of the fact that there are an estimated 64 million empty housing units (because most families can’t afford them). If that doesn’t fit the definition of a bubble, I don’t know what does.

All Bubbles…

So what you have going on is speculators buying homes from other speculators – fueled entirely by debt – in one giant ponzi scheme that is bound to come crashing down because nobody can really afford to buy and live in these increasingly overpriced homes.

If the numbers that are being reported are true, there will inevitably be a Chinese housing crisis and it will COMPLETELY dwarf the housing crisis in the U.S.

The Chinese home speculators will be slaughtered. The Chinese banks will be slaughtered. Whatever Chinese stock speculators that are left will be slaughtered. The entire Chinese economy will be slaughtered.

And the rest of the world?

We’ll find out.


About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


9 Comments »
  • Positive thinking says:

    Hi nice write up i was recently researching positive thinking and it said that your goals should be stated differently like instead of debt free it should be i am absolutely committed to financial abundance. While still keeping in view and practice your debt repayment system in place.

    It is said to operate on principle of “Law of attraction” and it seems to work.

    But its completely up to you if you want to do it or not. There is also a movie about it called the secret with some book by the same name.

    Wish you success in your goals.

    bye.

  • jt money says:

    I have 3 questions. Where are you getting these numbers? I work in the field as a consultant in China and i’ve never seen these numbers.

    Second question, Why are you grouping all of Chinese property together? Vacancy in Shanghai is below 10%, with most people’s definition of a under supplied market at about 4%. I admit places like Urmuqi probably has very high vacancy rates like 75%. Also it is a socialist (i.e. inefficient) country that is trying to move development to certain areas which doesn’t always work so you will get 25% occupancy. So please don’t use blanket statements to drive you point home.

    Lastly, “4. Universities built to accommodate 2.3 million students that have a slightly lower enrollment of a mere 11,000.” That’s just simply wrong, taiwan might have this problem but mainland’s universities are overcrowded and provide a terrible education.

  • Tyler says:

    Another interesting post about China. It appears more and more that investing in their economy is a huge risk.

  • Ron Ablang says:

    This is incredible that someone would build these new towns out in the middle of nowhere. It would be cool to see a map of where all the ghost towns are located along w/ population data for each.

  • B Kelly @ MoneyMasteryAcademy says:

    thanks for the article! I have definitely not heard much about this topic at all.. been too much focus on the US issue, Europe issues .. so thanks!

  • Justin @ MoneyIsTheRoot says:

    Good follow to the previous article, really sheds a lot of light on the U.S. debt they hold… something that scares me. It’s one thing when one country holds so much of our debt, and it’s another when that same country is about to experience a bubble more severe than the one that still has us out of whack. I’d say it will be interesting to see what happens, but im thinking downright terrifying…

  • RRS says:

    I love to see words like “The World is Headed for a Great Depression.” The reason I love this stuff is that several top 5 brands in various sectors of the market are getting hammered for no reason other than scare tactics. For the risk/reward style investor or dare I say….gambler – there are some amazing stock buys to be had at the moment. Just do a little research on companies that have fallen upwards of 50% over the last few weeks and dive in. As long as you are looking at true industry players – you should be able to find some bargains to help you weather the storm.

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