Saturday, March 23, 2013

They say, “If you build it, they will come “ among real estate big shots. Well, in China they are building entire cities with no one coming to live there. The economy is a mess and little regulation being done to control trends there. They also say, “Trouble comes in threes.” Could China be the next global market to melt down right after the United States and Europe? I just want to know who are the “THEY”?
It is apparent that if you wish to move up quickly in corporate America, just be willing to take a position in China for a while and upon completion of your project you should be rewarded handsomely for your sacrifice. In just 30 years the state controlled economy has become the world’s second largest. The government has concentrated on real estate and construction to fuel their economy. They forgot one major part. The people need to be able to earn a decent wage to afford to live in a great new home. The people earn next to nothing there.
The most populated nation on earth is building houses, districts and cities with no one in them. There are ghost cities with desolate condos and vacant subdivisions uninhabited for many miles yet they have all been sold. The emerging middle class in China has been buying real estate as an investment since values have tripled in price. Banks pay small returns and their stock market fluctuates like a roller coaster. 15 years ago the government changed their policies and allowed people to buy their own homes.
Everyone bought real estate because property prices have gone up faster than inflation. Some have bought 5 or 10 apartments fueling the building boom. No nation has built so much so fast. Now real estate is the main driver of growth comprising of 20 to 30% growth to their economy. 12 to 24 new cities are being erected every year. America has a market driven economy. In China it is the government that has spent $ 2 Trillion dollars to get these cities built as a way of keeping the economy growing.
All over China there are new shopping malls that are completely vacant. There is non-existent supply for non-existent demand. There are cities in Mongolia able to occupy a million people with no one living there. There is an English development near Shanghai called Thames Town that looks just like streets found in England built about 5 years ago that is more of a photo shoot area for weddings than a place to live. Tens of millions of villagers are being displaced and living like homeless people since they do not have their rice farms anymore.
Why are they empty? Well, most villagers live on about two dollars a day. The average apartment costs about $100,000 dollars. The villagers could never afford to live in a new place. China’s citizens are victims of the building boom. There will be multiple classes of people that eventually will be wiped out by this trend. There are people that invested 3 generations of savings into these empty structures that will see all their money evaporate.
Least we forget the 50 Million construction workers that will be out of a job once all the families saved money is all spent. Even the largest home builder in the world is Chinese and he predicts that this bubble will burst soon. A typical apartment in Shanghai costs about 45 times the average residents annual salary. Since 2011 China’s government has tried to curb the building and has ruled that you can only own one apartment; similar to their having only one child rule to curb the growing population.
Now there are unfinished construction sites abandoned because the building boom has slowed down so less investment means less money to finish projects. It is becoming a debt crisis because of the huge loans the developers took out. If they can’t repay them, the whole economy will stop. The governments greatest fear is that once everyone has lost their savings in these investments there will be riots and a general desire to force a democracy.
The Chinese people are fascinated with the American way and appreciate the many successful American based companies. We should appreciate our way of life more.

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