Last year a survey by the State Grid Corporation of China found that 65 million residences were empty. This number was circulated as evidence of a housing bubble — along with satellite pictures of Chinese ghost cities.A new survey, however, says that number is bogus.
CLSA talked to 200 developers in 54 cities across China. There are only 16.6 million vacant homes in China, according to this new survey.
16.6 million vacant homes isn’t all that scary in a population of 1.3 billion.
CLSA also points out a difference from the U.S. housing bubble: the lack of leverage in residential mortgage financing. There aren’t millions of poor people buying homes they can’t afford. Rather there are millions of rich people buying houses as a store of value.
Commodity housing represents the greatest portion of vacant homes — 7.8 million. Old public housing represents another large portion — 7.5. million — which may be destroyed rather than sold.
CLSA references this survey in a bullish case for Chinese stocks:
[I]t is important to note that the same bears on China who previously argued that China was overheating because of inflation are now starting to argue that it is collapsing because of an oversupply of housing and other physical infrastructure. The problem with this, of course, is that both arguments are mutually contradictory. Yet they tend to be articulated by the same people.
The reality is that the China story is more nuanced. But the critical point for investors is that the China bust story is unlikely to be realised so long as the command economy remains in control. For now the underperformance of Chinese equities in a global context since mid 2009 can be explained by the reality of China’s tightening at a time when almost all developed world central banks have been easing. If Chinese policymakers subsequently start easing, and China equities do not respond positively to that policy change, then that will be clear evidence to GREED & fear of a problem. But this is not GREED & fear’s base case. Rather, the view here is that China stocks will respond positively, as they always have done in the past, to the policy inflection point; though there is an issue of whether any policy easing will also occur in the residential property market. On that last point, the likelihood is that current controls remain in place pending the social housing build out even if the PRC becomes more relaxed about CPI inflation.
Disagree? Check out New Satellite Pictures Of Chinese Ghost Cities >
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