20181113-Nightmare Scenario for Beijing: 50 Million Chineise Apartments Are Empty

Zero Hedge（The“Nightmare Scenario” For Beijing: 50 Million Chinese Apartments Are Empty）:

Unlike the US where the stock market is the ultimate barometer of the confidence boosting "wealth effect", in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets.

 

Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, "smooth landing" process.  For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the "Tier 1" home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China's housing market: in addition to being the primary source of household net worth - and therefore stable and growing consumption - it has also been a key driver behind China's economic growth, with infrastructure spending and capital investment long among the biggest components of the country's goalseeked GDP. One result has been China's 

infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.

Meanwhile, in the process of reflating the latest housing bubble, another dire byproduct of this artificial housing "market" has emerged: tens of millions of apartments and houses standing empty across the country.

According to Bloomberg, soon-to-be-published research will show that roughly 22% of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That amounts to more than 50 million empty homes.

The reason for the massive empty inventory glut: to keep supply low and prices artificially elevated by taking out as much inventory off the market as possible. This, however, works both ways, and while it helps boost prices on the way up as the economy grow and speculators flood the housing market with easy money, the moment the trend flips the spike in supply as empty units are offloaded will lead to a panic liquidation of homes, resulting in what may be the biggest housing market crash ever observed, and putting the US home bubble of 2006 to shame.

Indeed, as Bloomberg notes, the "nightmare scenario" for Chinese authorities is that owners of unoccupied dwellings rush to sell when cracks start appearing in the property market, causing a self-reinforcing downward price spiral.

The fate of the world economy is in the hands of Chian’s housing bubble.