The Ghost Malls of China: Inside a Commercial Real Estate Bubble

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Empty Chinese MallsTo many observers, the Chinese property market has been exhibiting signs of a bubble. "In Beijing," reports Time magazine, "vast swaths of commercial space sit vacant -- including floors of retail space right next to the iconic Water Cube, the swimming venue for the 2008 Olympics."
In addition to the glut of commercial space, China appears to have too much room for living: "Based on international comparisons," the Economist Intelligence Unit reports, "a country at China's level of GDP per head should have 20 square meters of living area [per person]." (That's about 215 square feet.)

In fact, the figure for China is over 30 square meters, "which would mean that China is 53% over-housed." Even so, building continues apace: According to The Wall Street Journal, "Official data show 2.98 billion square meters of residential property under construction at the end of February."

And the overcapacity isn't limited to real estate. Chinese industry has been churning out massive amounts of steel, cement, and aluminum -- so much that there are doubts about the economy's ability to absorb the output. "With home prices now following transaction activity sharply lower," concludes Christopher Pavese, CFA, chief investment officer at Broyhill Asset Management, "the biggest risk for the Chinese economy, as well as the rest of the world, is a sharp slowdown in new construction." Pavese, who maintains the blog The View from the Blue Ridge, recently went on a research trip to China, and shared some images from the Chinese real estate bubble -- if, in fact, a bubble it is -- with DailyFinance.

China's empty mallTo the right are images from a shopping center in Zhuhai, a city of 1.5 million people located on the Southern coast of Guandong Province, where it sits in close proximity to both Hong Kong and Macau. Pavese reports that a common refrain from the government officials encountered by his team was the belief that "developing new cities and building new infrastructure will increase consumption."

"Judging by the lack of foot traffic in this home furnishings mall," Pavese concludes, "you could say that I am slightly suspicious."

"And the striking gentleman at the railing in the photo on the right is none other than Cullen Thompson, CIO of Bienville Capital Management," Pavese reports, "not a Chinese home owner. Although -- full disclosure -- the two women shown on the left picture may very well be actual Chinese consumers." Still, it's an ominous showing for a country that regards domestic consumption as a "key area" in need of improvement.

Real Estate Numbers Chart for China

Below are images from inside the Global Furnishing Design and Exhibition Center in Shanghai, the largest city by population in the world (excluding suburbs), "and one where you might expect to see more than a few signs of increased consumption," in Pavese's words:

China malls empty

As you can see, that expectation is not at all borne out by the eerily empty corridors and vacant stores inside.

Empty China Mall

For more information on the Chinese property bubble, and more images of empty malls in Shanghai, head over to Also Sprach Analyst.

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