How do ‘ghost towns’ and unsold homes undermine the revival plan?

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Ghost Towns and Unsold Homes Undermine Property Revival Plans Through Depressed Values and Developer Strain

The Chinese government's strategy to revive the property market by encouraging migrant workers to purchase homes is significantly hampered by the existence of numerous "ghost towns" and a substantial glut of unsold residential properties. This oversupply depresses property values, making it difficult for migrant workers, such as Liu Jun who earns less than US$1,000 a month, to afford even the most basic housing in cities where apartment prices can exceed US$1 million. Furthermore, the burden of unsold inventory and substantial developer loans exacerbates financial instability, creating a challenging environment for any market revival efforts.
Glut of Unsold Property Depresses Market Value and Affordability

The prevalence of empty and unsold residential properties across many Chinese cities directly undermines the affordability aspect of the government's revival plan. With a significant surplus of housing stock, potential buyers, particularly migrant workers, face a market where demand is suppressed by lack of purchasing power and a surplus of available units. For instance, new home prices in Beijing averaged 34,925 yuan per square metre in November, a figure far beyond the reach of many migrant workers like Liu, who would need to save for decades. This oversupply inherently limits the potential for price increases and makes it harder to stimulate new demand.
Developer Debt and Financial Instability Pose Systemic Risks

Developers who previously invested heavily based on the expectation of continued housing growth are now burdened by substantial loans that they struggle to repay due to falling home sales. China's home sales fell by 7.8 per cent in value in 2014, reflecting a broader economic slowdown. This financial strain on developers can lead to bankruptcies and ripple effects throughout the financial system, as these entities often have significant exposure to banks. The existence of "ghost towns" and unsold inventory directly contributes to this pressure by reducing the potential for developers to offload their properties and service their debts.
Reduced Demand for New Construction and Investment

The existing glut of housing and the creation of "ghost towns" signal a saturation in certain market segments, thereby diminishing the demand for new construction. Urbanisation and property development have historically been major drivers of China's GDP growth, with a 10 per cent increase in residential property investment yielding a full percentage point of additional GDP growth. However, the current oversupply means that further investment in new housing projects may not be economically viable, potentially leading to stalled developments and further economic stagnation. This reduces the overall attractiveness of the property market for both domestic and international investors.

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How do ‘ghost towns’ and unsold homes undermine the revival plan?

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