I’d be careful about drawing large-scale lessons from Ordos- it seems to be an extreme case. But the same principles that are at work in Ordos also seem to be at work in much of the country, and now via Reuters we hear that they’re starting to hit some serious snags:
The monumental, neo-Mongolian sculptures, empty plazas and hulking concrete shells of buildings in Ordos district, deep in the steppes of Inner Mongolia, are a potent symbol of how China’s property boom can turn to bust.
Off the back of a thriving coal industry, the local government has been building a new city for one million people called Kangbashi. It sits virtually empty and property prices are falling.
Even in the old city of Dongsheng where people live and work, some 45 minutes drive away, a wave of investment has backfired. Cranes sit idle over unfinished skyscrapers and migrant workers are fleeing.
The swing in fortune — residents and property agents say prices have dropped by up to a third — is a severe example of what is happening in cities across China, including Shanghai and Beijing.
After a housing bubble that doubled values in 35 cities between 2004 and 2009, prices are now falling nationwide. The central bank said on Friday property prices had reached a turning point while banks are worried a price slide of 20 percent could trigger panic selling.
“People are worried. Especially if they have bought two or three apartments,” said Yu Mingjun, a worker sitting in a down jacket at a ramshackle office of a half-completed project in the old town.
Nationwide, the decline is so far more modest. Home prices fell slightly in October from September for the first time this year, official data showed, but private surveys indicated prices began falling in September and continued through November.
With local governments often dependent on land sales to fund payments on a staggering 10.7 trillion yuan ($1.7 trillion) of debt, Beijing worries that a collapsing property market will trigger a wave of defaults that in turn will hit the banks.
“If society demonizes the property sector, especially if buyers think prices will fall, creating a sharp cooling off for instance 30-40 percent, I think that’s very serious,” said Hui Jianqiang, head of research for consultancy E-House China.
More worrisome, the property market, which contributes about 10 percent of Chinese growth and drives activity in 50 other sectors, could drag the real economy to a hard landing.
In empty showrooms of Dongsheng, Ordos’ old city, saleswomen immediately offer 30 percent price discounts if a buyer is willing to pay for a property upfront and in cash.
Chinese and foreign media seized on Ordos as the prime example of wasteful and pointless government projects after the government built the sprawling new city of Kangbashi.
Investors view ghost towns like Kangbashi as an example of the sort of excesses that could pull hard on the reins of the country’s growth.
On Thursday, a policeman shooed a Reuters cameraman away from the Wenming (“Culture”) property development right near government buildings in Kangbashi, as workers bearing shovels walked in to demand their last payment before heading home.
“Kangbashi is a sensitive place now,” he said.