Image may be NSFW.
Clik here to view.
Image may be NSFW.
Clik here to view.
Having just arrived in Ningbo, which will presumably be my home for the next three years, I have been talking to the taxi drivers and people on the bus about renting and buying an apartment in this city. Attending the Nottingham University of Ningbo, I am situated about 30 km south of the city center, or as a Chinese person would put it: I live in the countryside. And if you look at Google maps, that would actually be true, but the image is slightly out of date – maybe two or three years. Anyhow, it would not reveal the 50 or so high rises, all of which are 40 to 60 floors tall, which have all been built in the past 18 months. According to my taxi driver’s estimates, at least 10 000 people should be able to live there. Just doing a little calculation in my head, I come up with a number somewhat higher than that.
The buildings all look very sleek and modern – something more reminiscent of downtown Frankfurt than ‘Chinese countryside’. I am stunned. How could this be? I ask my driver how much one of these places goes for. At least 15 000 yuan per square meter, he says. I do some quick math – that’s at least over 1 million yuan for a small place or at least 2 million (300 000 US$) if you want to live with a family. Can Chinese people afford that? Can this taxi driver afford this? Of course I know it could not possibly be, so I would not ask him this question directly, but I tell the driver that I heard that in China most apartments are usually sold before construction is complete, so I am wondering why the streets are so empty. Where are all the people?
They are not here yet, he responds as a matter-of-fact.
So who bought the apartments?
Business people from Ningbo. They buy many, not just one. Normal laobaixing can not afford a place around here. I am 42 years old and I’ve been working for the past 24 years and still can not afford a place.
So what happens to the apartments then if normal people cannot afford them?
They will remain empty or be rented out for now. They will be sold later. Prices will go up – its an investment, he insists.
So how much is the rent for a place that’s about 80 sq. meters (1.2 million yuan to buy)?
About 1300 to 1500 if its empty. Furnished maybe 2000 to 2200.
I had similar conversations with maybe people here in Ningbo, and it leaves me in disbelief. This is such a vast bubble! Not just here. Everywhere in China. Shanhai is even more extreme. And most of the people even seem to know it, but they are convinced the bubble cannot burst because the government will not let something like that happen.
And yes, of course it is a bubble, otherwise it would not be realistic that the renting price is about 1.5% per year of the buying price. Everywhere else in the world 5-6% would be considered normal. The price expectation of the future rise in property prices is so enormous, that people are willing to pay a 300-400% premium on the actual price, as reflected by rental prices. They are basically paying the price the apartment should cost in 15 years, not now (That is assuming people’s incomes will rise 10% per year for 15 years).
Yet at the same time, if prices were not so high, if they were a reflection of the purchasing capacity of the people who will eventually live in these places, then the money would not be there to construct buildings resembling downtown Frankfurt – they would have to look like 80s communist style buildings. And the government knows this, so of course they will not allow the bubble to burst. Or die trying.
It seems like a game of chicken, where the government is driving a VW Polo at 190kmh on an overheated engine trying to reach the finish line before the engine explodes, while at the same time trying to upgrade the Polo to a Ferrari while still accelerating the whole time.
And yes, there is a finish line. It lies about 30 years in the future at which point there would presumable lie a completely transformed China where 80% of the population lives in the cities (now its about 45%, meaning an increase of 500 million people moving form the country side to urban areas) and all the buildings for those people to live and the infrastructure to support them has been built to a level that will equal or surpass Europe or the US in just about every way (think of a 350kmh railway network, the worlds greatest highway network, extensive and super modern subway networks in every city, high tech airports, modern buildings, highest tech electricity gird and modern power generation, modern universities and new schools, modern hospitals and just about everything else that comes with a modern city)
Will they manage to get to that finish line? I hope so, because if they don’t, they will die trying.