CLSA, Asia's leading independent brokerage and investment group, analyst Nicole Wong and a team of analysts spent a year on the ground in China, examining 810,000 property units at more than 600 projects across a dozen cities. They found that there is serious excess of developed real-estate in third-tier cities in China. This has resulted in 'ghost towns', places that have office building, shopping malls, apartments and government buildings but no people. China's vacancy rate for properties developed over the last five years is 15%. This is equivalent to 10.2 million empty units. The actual rate isn't too worrisome because it is 10% in the US. What is worrisome is that the percent is rising and looks to exceed 20% between 2016 and 2017. This problem is being created by overinvestment, China spent 12% of its GDP on new home sales in 2013. New homes sales in the US are well below 10% of GDP. Another problem is that some third-tier citis have higher than 15% vacancy rates. Developed property sales in third-tier cities could see sales shrink by 60% between 2013 and 2020.
One examples of a Ghost City is a replica of New York under construction in 2013 outside of the Northern Chinese city of Tianjin named Yujiapu. The land it is being built on resembles Manhattan and they even have plans to build a Lincoln Center, a Rockefeller center and more copies of the city. However, in 2014 the construction came to a halt and investors pulled out. A cluster of skyscrapers sit half-finished in the project. It is now a Ghost City.
The most infamous Ghost City in China is the City of Kangbashi in the Ordos region of China. The city was built for a population the size of Pittsburgh, around a half a million people, but the city is nearly empty. It has empty five floor shopping malls, an unused Formula 1 racetrack and dark corridors of office buildings. It was built a decade ago but the regions fortunes went bust and now it is in lots of debt. To attract people to the Ghost City, the government allows people to move in and setup businesses with the first three years rent free.
