2011-11-25

Erdos property values collapse

Mish had this story up: Home Prices Crash 62.5% Since September in Erdos, a Chinese "Ghost Town"

I tracked down the original Chinese article: 鄂尔多斯"鬼城"楼市崩盘 万元房价跌去7成

The main story is that prices are down from 10,000 RMB per sqm to 3750 RMB.

Erdos (Ordos) is somewhat similar to the developments at the edges of cities in the Southwest, areas that may simply be abandoned. The difference is that the government is involved: they can direct development in a way that favors a move to the new city. Also, Ordos is in a resource producing region; the length and depth of this decline partially depends on where you see energy prices heading. All of which is to say, it's a special situation that doesn't directly translate into the housing speculation in Beijing and Shanghai. The takeaway is the trend and the force of the move. If we think of the whole market of individuals, by itself a single project or area going bust has very little effect on the whole. So far, there's the Wenzhou crisis, followed by price cuts in Shanghai and other cities, and now massive price cuts in Ordos. A trend seems to be firmly establishing itself, with Chinese monetary policy and global economic trends all supportive of the current trend. It won't be too long before Chinese recognize the crisis.

Here is more from Caixin: Ghosts of a Property Bust Haunt Erdos
A report by GoHigh Investment Co., a private equity fund, said the 10 million square meters of housing sold in Erdos last year compared to about 15 million in Beijing, even though the latter's population is more than 10 times greater.
The investor said most locals thought the asset bubble would eventually burst, which appears to be happening now, but each expected to grab his or her chair before the music stopped. Much of this speculation was fanned by the city's sprawling private lending network. Flush with money from coal mining and enticed by government invest-locally promotions, most Erdos residents poured personal wealth into the local property market.
Yan said one of her customers, a developer, defaulted and "gave me a property with 1,200 square meters, saying it's worth 60 million yuan. But who will buy it from me?"
1200 square meters is about 13,000 square feet, the price works out to about $725 per square foot. As a comparison, this article says NYC financial district homes are selling for about $900 per square foot.

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