Over the vacation, I was afforded a chance to catch up with several good friends, two of whom were young Chinese men, entirely independent of each other yet featuring eerily similar stories: “My girlfriend wants to live in Beijing; and in order to move forward with the relationship I need to buy a house. Beijing house prices are crazy, so I have to buy a house here so that they’ll move back. I can’t afford to wait until prices drop. What would I do, rent for 10 years?” I went over the various ratios that one might consider when attempting to determine property valuation (affordability indices, rent/purchase price ratios, secondary market prices), trying to convince both that buying a house would be a horrible investment, though there’s obviously more at stake if you need one to convince your girlfriend to live with you. Both responded, “even if it is, I have to buy one.” There is some justification for buying a new flat to obtain the 70-year ‘land usage right;’ purchasing a flat on the secondary market would transfer the ownership rights, which are necessarily less than 70 years, and therefore might be an issue within the purchaser’s lifetime.

Such stress results from the entire situation, and yet if you walk around (1st tier and 2nd tier cities), the number of dark apartment flats at night are staggering. I would take a picture to illustrate the point, but you really wouldn’t be able to see anything. It can’t simply be that everyone keeps the lights off at night (contrary explanation: there are people living there but they can’t afford electricity to service expensive mortgages on a Rmb8,000 month combined salary).

Yves Smith at Naked Capitalism has an excellent summary of the situation, which squares with what I’ve observed here thus far:

Some people may be engaged in short-term ”flipping,” but as I’ve described in my FEER article “China’s Real Estate Riddle,” a lot more are buying residences — in many cases multiple units — and holding them vacant indefinitely as an unproductive ”store of value,” like gold. As I mentioned in my article, the Financial Times estimates that there are 587 million meters of apartment space that buyers have purchased over the past five years only to leave lying empty (for a concrete notion of what this statistic means, take a look at Al Jazeera’s report on Ordos). This puzzling phenomemon is due to the fact that Chinese citizens have relatively few investment options, and China’s real estate sector (unlike its stock market) has never experienced a sustained downturn since the country converted to private home ownership in the mid-1990s. The fact that China has no annual holding tax on property means there is little penalty for letting property lie idle, in the hope that it will appreciate or at least retain its value. The result is an inflated market where the demand for property as a pure investment vehicle far outstrips the demand for affordable, usable space.

… What we see in China, though, is an extremely weak secondary market. In the U.S., the ratio of secondary to primary residential property transactions for the first half of 2009 was 13.45; in Hong Kong it was 7.25. In China as a whole, that ratio was 0.26 (four times as many new home purchases as secondary sales). Even in China’s most developed markets the ratios were just 1.30 for Beijing, 1.56 for Shanghai, and 1.35 for Shenzhen. [Keep in mind that an immense quantity of existing housing stock was privatized in the 1990s, at nominal prices, so the explanation cannot be simply that China is a "new" market -- China actually has a higher rate of established home ownership (80%) than the U.S. (70%)].

Poor young Chinese men. In the best case scenario: study 160 hours a week to get into a decent university, don’t have time for girls. Go to university and live with six other dudes, don’t have place to bring girls. Graduate from university and try to find a job and start saving for a home, since until you buy one very few women will agree to exclusive mating arrangements.

* With regards to the New Ordos story: on my walk to work several weeks ago, there was a little stand on the sidewalk where a woman was passing out information on ‘moving to New Ordos city.’ Did not investigate. Should have.