While the 2022 spy balloon-caper is still fresh in everyone’s minds, China is still sitting on overbuilt, residential real estate everywhere. It now threatens their stability, and ultimately global peace.
For those of you who follow biz-news and are half-awake to dozens of reports in the past few years—you know that China is awash in empty, unaffordable, frozen residential real estate.
Most of this real estate is comprised of similar, high rise condos, many built in well-planned cities, now devoid of people unable to make, or sustain, their original purchases. It was an officially sanctioned scheme (aren’t they all?) that allowed the thrifty, long-term thinking Chinese to speculate on owning multiple units. “Real asset” mania, writ large.
It coincided with a national policy to generate employment and investment in …urban areas, financial infrastructure (mortgages), and the construction trades across China. Most of it is actually well planned, designed, and constructed; there’s just too much.
And now in some notable cases, these newly constructed mega-structures are being demolished to create supply shortages, in order to prop-up others’ values.
Enter the American Car-Dealer: When car guys have too much or too little inventory, they go to the auto auction, something I’m familiar with—having worked for Daimler-Chrysler Finance when the Germans owned Chrysler (1998-07).
The auto auction functions as “ultimate price discovery” on every vehicle run through its process; in many respects, it’s like the localized, “sale barn” auction American cattle ranchers use to adjust their herds, and ascertain prices. Once you commit to the auto auction system, or sale barn, you have to take the price, by contract law. Only under extraordinary circumstances can a “no sale” be declared.
The Chi-coms in China, being Communists, have taken the entire concept of free market price discovery out of the real estate mix they’re now buried in. That said, there is a way out that would be ideologically practical enough to satisfy both, and one the late Deng Xiaoping no doubt would approve.
Construct a [mandatory] virtual real estate wholesale auction: License well-capitalized individuals or companies who want to become “real estate dealers”, rental moguls, or unit traders, just like we do in the USA with car dealers. Allow them to [exclusively] participate in this closed auction concept. Make the auctions localized so they’re reflective of local conditions.
Review & validate dealer capital requirements continuously; have the general mortgage lenders use this pricing information for their normal retail operations. Perhaps there’s a legal covenant in the standard mortgage, upon the decision to sell on the open market, and after a reasonable period has passed with no acceptable buyers, the seller must use the auction process (or it’s considered a loan default and immediately auctioned). Again, ditto the US car dealer repo process.
Who knows? It might even catch on the USA, inasmuch as bogus real estate bubbles were largely responsible for every recession, save one or two, in my lifetime. Residential real estate is simply the “largest consumer durable”, when you strip away all the sentimental hooey that’s been spewed about “home ownership” the last 7 decades.
Time to get real, and even in America, move on from an economy based on real estate speculation.
Sellers is a Southpark Republican living in incorporated Oro Valley; his background is federal technology commercialization