China Stares At A Housing Catastrophe: 55 Million Homes Lie Vacant, At A Non-Occupancy Rate Of 22 Per Cent 

According to a nationwide study conducted by Professor Gan Li, 50 million homes in China lie vacant. That represents a vacancy rate of around 22 per cent, as reported by The Economic Times (ET). The soon-to-be-published study utilises data from a 2017 survey.

Such a high proportion of empty houses and apartments could soon turn into an economic catastrophe. If the owners of these residences lose faith in the market and believe that the prices will start dropping, it could trigger a nationwide sell-off. Thus, with more number of houses on sale in the market, prices will crash, and investors will have to suffer heavy losses.

“There’s no other single country with such a high vacancy rate. Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood,” Gan, Chengdu’s Southwestern University of Finance and Economics, commented.

Though an economy can sustain a healthy level of vacancy rate, a large number of empty houses also create inefficiencies in the market. With high vacancies, the supply of new dwellings is restricted, and this artificially inflates housing property prices.

Economists across the world have repeatedly warned that China might be headed for a Minsky Moment. According to it, excessive speciation in any asset class (in this case, real estate) leads to instability in the market, leading to a bust in prices. During a boom period, investors take loans to buy assets at extremely high and unjustified prices. However, the boom period cannot exist forever, and soon, when the market corrects itself, prices start falling.

Now, investors who had borrowed money previously at high rates of interest are unable to pay back their loans because no one is willing to pay astronomical prices for junk assets. Thus, the bubble bursts and the recession starts.