Home Prices Crash 62.5% Since September in Erdos, a Chinese "Ghost Town"

Erdos is an inner-Mongolia city with rich natural resources. However, it's a ghost town with many buildings but few people. Home prices just crashed 62% in a few months.

Let's take this story starting from the beginning.

2011-07-11
China Times reports Housing bubble in Inner Mongolian city bursts

A property boom in the Chinese city of Ordos started in 2006, but became stagnant this year after banks tightened credit and coal enterprises in the region have consolidated.

Ordos, a city in central-west Inner Mongolia, has deposits of coal and oil. A recent report by China's Ministry of Housing and Urban-Rural Development showed that the GDP per capita of Ordos surpassed that of Hong Kong.

The number of the rich people with more than 100 million yuan (US$15.468 million) is over 7,000. One out of every 15 people in Ordos has more than 10 million yuan (US$1.546 million). Those who have only one million yuan (US$154,680) are considered poor.

With so much wealth floating around, housing prices have skyrocketed. According to the newspaper Southern Weekend, this third-tier Chinese city once had real estate prices that averaged 7,000 yuan (US$1,082) per square meter.

Several buildings sold recently for as high as 13,000 yuan (US$2,010) per square meter. Home prices in Erdos have climbed to over half the price in Beijing, one of China's most expensive property markets with an average of 22,914 yuan (US$3,544) per square meter.

However since February, home sales have stalled, with only around 10 percent of properties on the market being sold.

In addition, underground financing is rampant in Ordos. Every housing project has to seek funds from the private sector, which has taken a 40-50% share of the lending market.

A developer in Ordos said that some in his industry have invested all their money into real estate. Now, with new homes still being built, developers must pay their bills monthly, but since they cannot sell the properties, they are forced to continue to dump in money. Once banks refuse to offer loans, they have to borrow from the private sector, forming a vicious cycle of dependency.

Kang Bashi, the well-known ghost town in Ordos, represents the epitome of China's housing bubble.

The town, which cost 17 billion yuan (US$2.629 billion) to build, was originally intended to become a city with a population of around one million, but the number of people actually living there is less than 20,000.

Chinese media has described the town as "quite barren, with only a few vehicles passing through the multi-lane highway. Some government offices open in the daytime. Pedestrians that appear every so often look like illusive beings, dragging their heavy feet along, like a lone survivor after a catastrophic event from the movies."

2011-09-29
China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear

Here is an interesting email from reader "Kevin" regarding the crashing loan-shark market in China.

Hello Mish

I am a long time reader and want to bring to your attention on a new development in China: private business owners are disappearing or jumping off buildings because they can no longer pay off black market shark loans.

According to national new paper Economics Information (part of state media Xinhua), on 9/22, Hu Fulin, owner of the biggest eyeglass manufacture of the city of Wenzhou disappeared, leaving behind 2 billion RMB debt.

On 9/25, 3 more business owners in Wenzhou disappeared (owners of copper, steel and shoe manufacture).

On 9/27, owner of "Zhengdeli", a shoe manufacture jumped off of a 22 story building and killed himself.

....

2011-11-24
China Financial Daily reports Erdos "Ghost Town" property market crash, ten thousand yuan housing price drop by 70%

Living in the edge of the Ordos storm , Ordos was beset with a different version of real estate lending Wenzhou panic . For example, local ? Jinxin Han Lin Yuan ? project , its second-hand house prices are around 10,000 yuan , while the market price now only is 3750 yuan.

The example given is a 62.5% decline but some properties may have fallen 70%. Either way, that is one hell of a price decline since September.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Source: http://feedproxy.google.com/~r/MishsGlobalEconomicTrendAnalysis/~3/CNekqcezUb8/home-prices-crash-625-since-september.html

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