This video is sponsored by Skillshare. The first 500 people to use the link in the
description get their first two months free. Deep, in the mountains of Austria, lies the
small, but scenic town of Hallstatt. But this isn’t that, It’s an exact replica,
built 9,000 kilometers away, near Hong Kong. Austria. China. It’s home to European architecture, Chinese
cuisine, and all the traffic of… North Korea. Because, during the day, it may be the wedding
photo capital of the region, But after the sun sets, its cottages become
remarkably quiet. China’s lookalike towns, of places like
Paris, Berlin, London, and Jackson Hole, Wyoming, aren’t alone. In many places, across China, there are far
more houses than there are people. Long rows of apartments, even entire cities,
sit completely, or mostly empty. In total, approximately 50 million units,
Or 22% of China’s entire urban housing. But this doesn’t mean they aren’t being
bought. Because, they are. Like crazy. Ten years ago, most people were, as you’d
expect, buying homes for the first time. Today, it looks like this. Second homes are the majority, and people
are buying almost as many third homes as first! These aren’t cheap, either. In Los Angeles, the price per square foot
is $633. In Shenzhen, 805. And, close your eyes, because you don’t
even wanna know the price in Hong Kong. Now consider the difference in wages. The average annual income in Shenzhen is around
7,500 US Dollars, compared to 60 thousand in LA. Something clearly doesn’t add up. People in China are buying homes like Americans
buy… cars, But they’re leaving them empty, And it’s not clear where the money is coming
from, or why they’re being built. The usual explanation is that China’s government
is so desperate for economic growth that it builds bridges to nowhere and houses to…
look at. But that’s only one part of a much bigger
story. China’s troubles begin with its political
system. The Central Government is the highest level
of its only party. Here, laws are written and the fate of the
nation, decided. Beijing is THE ultimate authority. It appoints everyone from secretaries to governors,
and isn’t afraid to move them around should any one official gain too much influence. BUT - it would also be a mistake to see China
as one, singular power. Because below the central government is a
network of local divisions: 22 regional provinces, 4 municipalities, 4 autonomous regions, and
2 Special Administrative. Under those are over 300 prefectures. Followed by the less important counties, townships,
and villages. Now, just as Californians have different concerns
than do Texans or Floridians, China is a big country, and the interests
of a coastal exporter like Shenzhen are very different than those of, say, a more independent
region like Inner Mongolia. The same is true for different levels of government. While Beijing writes the rules, cities apply
and enforce them. Often, very differently. And there’s one, awkward little detail:
Cities receive just 40% of tax revenue, but are responsible for 80% of their expenses. So, naturally, they need another source of
income. And this is where things get interesting. In China, rural land is collectively owned. Everyone, and also no-one, owns it, which
means it can’t be the location of a new luxury apartment. But luckily for cities, they have the power
to rezone land from rural to urban, which can be developed. In other words, they own a money printing
machine. Watch this: First, a city buys cheap, rural
land, Which it then redefines as urban, And finally, sells to developers at its now, much
higher, price. Like. Magic. Over, and over, and over, again. Cities get much-needed cash, and developers
build housing like it’s nobody’s business. Now, unlike states in America, local governments
here are generally forbidden from taking loans. But, again, there’s a loophole. Cities can create a Local Government Financial
Vehicle, which is a fancy way of saying, a state-owned company. And by “giving” it that new urban land,
the “company” can do what the city legally can’t: borrow money. Which, they can use to build roads, schools,
and, on occasion, replica Austrian towns. This is so effective that, in some years,
land sales account for 40% of local government revenue. Plus, all this construction increases GDP,
which just so happens to be the way officials get promoted. It’s a perfect system. At least, until it’s not. If, or, when, housing prices fall, so does
city revenue. And, all those loans probably won’t magically
disappear. Beijing wants to avoid a housing crisis, but
cities just want to survive, and governors, get promoted, which puts the two at odds. Eventually, cities start running out of land
to sell, and have no choice but to build more. Like this one, which spent 2 billion dollars
blowing up the tops of mountains. Those developers who purchase that land, by
the way, are required to use it, which leads to many, often quickly-constructed, low-quality,
houses. And that brings us to the second question:
why are people buying them? And doing it like their life depended on it? Well, for one, because it kinda does. Thanks to the famous One Child Policy, China
now has the entire population of Canada more men than women. And that means fierce competition for marriage. Men are expected to own at least one property
before even being considered. It’s one of the most important elements
of social status. For many, real estate isn’t just an opportunity,
it’s a downright social necessity. Because of this, friends and family pool money
together to help buy homes for their children. And that’s how, nearly everyone, in a country
with the per capita GDP of the Dominican Republic, can afford some of the most expensive homes
on the planet. The other big factor is that Chinese citizens
Save. Like. Crazy. When it comes to saving money, there’s China,
and then there’s basically everyone else. Where, Europeans put 4 percent of their disposable
income in the piggy bank, Chinese drop nearly 40! The problem is, where can they put it?. China’s domestic stock market is just too
risky, And its banks are often seen as unpredictable. Which makes real estate a Chinese investor’s
best friend. It alone accounts for 70% of all household
wealth. It also doesn’t hurt that property tax is
a beautiful 0%. When taxes are only paid upfront, why wouldn’t
you buy as soon as possible, and just sit on it? Put all this together, and you have a recipe
for extreme house buying. An amazing 90% of homes are owned by their
residents. Europe and the U.S., stand at 69 and 64%,
respectively. And while we’re on the subject of crazy
high numbers, Ninety-four percent of Chinese millennials who don’t already own, plan
on buying in the next five years. What else do 94% of people agree on? Not even China can quench this thirst for
real estate. Despite laws against it, billions of dollars
flow out of the country every year into foreign property. It’s so common in places like Vancouver,
that, earlier this year, it introduced a 20% tax for foreigners. The irony is that while cities like Beijing
and Hong Kong have so little room, people are forced to sleep underground, these 50
million homes can’t find renters. So, hey, if you live in California, I think
I may have found an escape plan. Anyway, not only are these homes bought without
interiors, literally just concrete walls, but they’re also usually located outside
city centers, where there aren’t as many jobs. Now, the assumption in all of this, is that,
eventually, people will come, And speculation will become reality. The Eastern side of Shanghai, for example,
was once laughed at by Milton Friedman for being totally empty. Today, as a financial capital of the world,
with a GDP of 400 billion, we can pretty safely say it’s proven the haters wrong. China is in the process of migrating 300 million
people from country to city, And, of course, they’ll need a place to live. Inevitably, many of these cities will spring
to life. That doesn’t mean everything is peachy. A few things are decidedly not peachy. First, remember that the vast majority of
empty homes is expensive, commodity housing. These are not the kinds of places you buy
coming from a farm in the country. And second, all these homes have an expiration
date. In China, a building can be owned, but the
land beneath it can only ever be leased - from the government, for 70 years. After that, it’s anyone’s guess whether
ownership will be renewed. And if so, for how much. But, the truth is, 70 years is pretty optimistic… Think about it this way: If construction is
good for GDP, why build once, when you can build and re-build every few years? It’s kinda like the iPhone, if you’d like
to upgrade every year, Apple will happily sell you a new phone. It’s certainly not judging. Except, in the case of China’s housing,
developers are incentivized to make short-term bets, they know their homes will only last
a few decades anyway, which means using lower quality materials. Meanwhile, cities continue taking loans and
housing prices continue rising unsustainably. Of course, Beijing knows all this. It’s aware of the bubble, the risks involved,
and it knows more or less how to fix it - some combination of slowing down lending, reining-in
local governments, and introducing a property tax, like Shanghai. The problem is, real estate is so intertwined
with its GDP, that any of these solutions would seriously risk slowing down its economy. In the coming decades, the world will watch
as China does its best to carefully balance its enormous challenges with its relentless
desire to grow its economy and realize The Chinese Dream. As Beijing prepares for economic change by
diversifying its revenue, You and I should do the same. Today’s sponsor, Skillshare, helps you learn
new things so you can do just that. If you’re still watching this, it’s clear
that a) You like learning things and b) You learn visually, which means Skillshare’s
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and to you for listening.
My work used to take me to China. I never saw any evidence of empty buildings in places like Beijing and Shanghai. However it was the tertiary cities that had giant buildings which all appeared to be empty. The city that really stuck out most to me was called Yantai. Lots of brand new finished tall apartment building all without a single light on. The hotel I was staying in was ~30 stories and I staying on a floor near the top which seemed very busy. However the room for breakfast was almost empty. The only people I saw were the ones I also occasionally saw on my floor. I don't know for sure but I assume they just put everyone staying in this 30 story hotel on the same floor to hide how empty it was. This was ~6 years ago so things might have changed since then.
Its the only way to maintain a high growth rate.
Reminds me of stories about crews digging holes in the morning and then and a different afternoon crew comes back to fill up the hole.
So, Chinese are buying apartments that they may only own for 70 years? That would explain why they're so anxious to purchase off-shore but it's a bit of a head scratcher as to why they would buy in China.
I think the biggest stat is that 22% of all homes in China are empty. I wouldn't be surprised that that's the same number of empty SDH on the west side.
It's inflation. China runs inflation rates in the double digits and in that type of environment housing(and other inflationary assets) literally NEVER go down in nominal price. When you grew up with and have experienced that your entire life, it's no wonder you come to a place like Vancouver and buy real estate. It's the only sure thing you've ever known.
Largely they've been proven correct using that mentality in Vancouver, not because it's correct, but because we have high enough of an immigration rate from China for it to become a self fulfilling prophesy.
This was an entertaining video that missed so many relevant information on purpose to justify their conclusion. Shenzhen for example is right next to Hong Kong. You cannot say, average income is $7500/year and price/sqft is +$800 without mentioning its neighbour, one of the financial capitals of the world. From backwater to big city: Shenzhen's transformation through reform and opening up
Why are there dozens of 'ghost cities' in China?
edit: long but more informative video, 60 Minutes Report - China's Ghost Cities
What's missing is the fact there is no stock market to speak of worth investiging in, in China, so they buy houses as a store of wealth