2016-08-07

Real Estate Is The Only Pillar of Many Local Economies

Prior coverage of Fugu.

The latest headline is private lending market collapses, prices cut in half.

iFeng: 民间借贷崩盘 这个地区房价腰斩烂尾楼成片

There's only 240,000 people in the whole county and everyone already has a home:
"Now no one to buy a house. Earlier also saw prices fall, and bought a house in the new district, is now a fundamental one will buy the whole Fugu County, only 24 million people, basically all the locals have a house, but now new there are that many of the house. "a local resident told the" China Times "reporter.
Prices soared as high as 15,000 yuan /sqm during the coal boom, but now they're back to around 6,000 yuan / sqm.

The affordable housing is unattractive property with no support infrastructure, resulting in an occupancy rate of 10 percent.
According to the Fugu County of affordable housing construction project office staff, Fugu County to effectively solve the housing difficulties of urban low-income people, near the county building a new house mountain, river after two affordable housing complex, housing a total of 26200 sets, which can accommodate about 7.2 million people live. Exactly two cells of urbanization standard design, water, roads, electricity, gas, heating and other infrastructure are in place, equal to build a new city.

However, in the opinion of local residents, the community at the top of the building, not far from New attractive.

"Inaccessible not say, no way now repaired, even if repaired, narrow and steep roads, together with supporting facilities are incomplete, there are hospitals where there are convenient School District." Says one resident.

However, hospitals and schools are in New temporary unfinished state, the original plan to accommodate a population of 100,000, there are only 10,000 people.
The private lending market freeze was a blessing in disguise. Although Fugu is littered with partially constructed buildings, finishing them would have meant a greater loss. The investment would have only paid off if population kept climbing during the coal boom. Instead, as is seen in other cities, the population growth went in the other direction. Misallocated resources on a grand scale.

The conclusion is a warning for most of China:
"Fugu problem is actually quite serious, these two pillars of coal and real estate industry has become a drag on the industry." The source said.

In fact, Fugu case is resource-based urban development process of urbanization lessons are highly dependent on local natural resources and rapid development, once the depletion of natural resources or develop investment stop, there will be stagnation phenomenon, very short period of time finds it difficult to support the formation of endogenous dynamics of sustainable local economic development. Although Fugu is to shift the focus to the investment upswing, however, the crisis of empty city, in the short term can not turn articles.
Many local economies in China rely on the real economy supplemented with real estate. When the real economy suffers, as it has in resource-reliant areas, the economy comes to rely almost entirely on real estate for growth, resulting in an unsustainable situation. Eventually, there's a panic that causes the private funding to dry up and a major collapse in real estate follows.

The growing reliance on real estate became a provincial level problem in Liaoning at least two years ago, and the end of the real estate boom led to a full blown recession in 2016. The spike in public infrastructure spending, along with the local property booms, may be hiding underlying economic stagnation, or worse, contraction. This may be why the government is so slow to close zombie companies: once the main pillar of the economy is shuttered, what's left in many places is an unsustainable real estate market, but one that is increasingly relied upon for GDP growth.

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