A tale of two ghost towns: China situation could get scary
Regular people like us who have lived in a city like Bangkok all our lives may not understand what a "ghost town" or "ghost city" is, or what these labels mean. The terms have been used recently not in a supernatural sense but to describe towns or cit
In China, we have seen and heard stories of this phenomenon in the past few years as a result of the country’s real-estate boom, which came after the government changed its policy almost two decades ago and allowed people to buy their homes.
This was coupled with the rise of the nation’s wealthy middle class, who saw real estate as a solid investment, as well as the need to stimulate the economy to maintain growth.
It is reported that China is building new cities at a rate of 12-24 per year. That is simply astonishing.
They have tried to create new satellite economic and social ecosystems and lure people from existing big cities to live and work there, but the scheme has not worked well.
Now, let’s move across to the other side of the world. There have been recent reports of similar phenomena in such cities as London and New York.
These are supposed to be metropolises, but how have these become known as ghost towns? I am not talking about the whole city being left vacant; I am talking about particular neighbourhoods known to be residences to the world’s multibillionaire jet-setters and businesspeople.
The point is, these people don’t really treat their properties in these cities as primary residences, but rather as secondary ones or luxurious crash pads when they happen to be in town or are on holidays with friends and families.
I am talking about, at the most, a two-month period of residency per year, and that leaves more than 10 months of letting the place sit in darkness, at the mercy of building superintendents to maintain the places in their utmost condition.
You may ask why these people don’t rent out their places while they are not using them. But imagine: If you were them, would you care to earn a few hundred thousand dollars extra, when you are already making billions in a year? Also, rental fees with proper returns in the eyes of businesspeople like them would be way too high for anyone to afford.
These are two cases that are worth looking at.
In London, the issue has become a concern for local people and representatives because they think these rich people are buying property there as an investment, living there for a few days, and for the rest of the year they’re contributing very little to the local economy. But I am not sure if I would totally agree with that, because during my last few visits to London and New York, in particular prime areas like Knightsbridge, Kensington, East 56th Street and Central Park West, I still saw shops and outlets frequented by many locals and tourists.
While the social and economic consequences caused by vacant residences in cities like London and New York are limited to specific groups of communities and businesses, the impact of China’s case is far beyond that.
In London and New York, only those who are directly dependent on the existence of permanent residents will feel the effect: shops, building management, agents, etc.
Or on a larger scale, it could affect the real-estate market on a national level.
The nature of real estate is that it tends to “self-correct”. Areas go in and out of fashion. Psychologically, if these expensive places are indeed ghost towns, then they will not be as attractive to the people who are subsequently looking to buy because exclusivity doesn’t always mean desolated and lonely. Prices will steady and new areas will become alternatives.
The market will adjust and move on.
But in China, the current existence and even additional build-up of ghost towns could eventually lead to much larger consequences.
It’s the nation’s main driver of growth, and has been for the past few years. Some estimates have it as high as 20 or 30 per cent of the whole economy. A crash in construction in 2009 led to a wave of unemployment that sent millions back to their rural villages.
Given the current state of the global economy, which depends on major market growth and consumption, the prospect of millions of Chinese out of work, not to mention the nation’s non-performing-loan situation, is a prospect that I would rather not think about.
