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