Fear empty flats in China's property bubble

[marmar]

Aug. 3, 2010, 8:30 p.m. EDT
Fear empty flats in China's property bubble
Commentary: Even worse than price bubble is quantity bubble of vacant flats


By Andy Xie

BEIJING (Caixin Online) -- How many flats in China are sitting empty? The media recently floated a story -- denied by power companies -- that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people.

Statistical transparency is lacking in this area, so the truth about empty apartments remains under wraps. Publishing accurate data should be of the highest priority, since the size of the nation's unused apartment stock is perhaps the most important measure of the extent and seriousness of China's property-market bubble. Indeed, it's a grave concern for policy making, since unpublished data may indicate not only a price bubble but a quantity bubble burdening the market.

Real estate is prone to price bubbles because unique factors restrict its supply response. Inflated prices have been the mark of most modern-day property bubbles. Price bubbles occur frequently and can last a long time.

In the 1980s, Tokyo saw a tremendous rise in property prices not in tandem with supply. The Hong Kong property market experienced a similar phenomenon in the 1990s.

One reason for limited supply is that property development is subject to government regulations, especially local rules. Established communities usually restrict building heights and density, for example, making it virtually impossible for mature communities to increase supply quickly. London, which is now experiencing a price bubble, and Tokyo in the past are cities that tightly control building heights. ................(more)

The complete piece is at: http://www.marketwatch.com/story/chinas-overhang-of-empty-apartments-2010-08-03