Vacant residential swimming in the real estate bubble.

In the middle of 2008, the State Grid Corporation of China (SGCC) observes that there are 65.4 million houses in 661 cities of China have no electricity consumption records for six consecutive months. In other words, there are 65.4 million vacant residential units which available for one hundred million people to live. And based on that, the housing vacancy rate of China has been calculated out as around 25% which is more than 2 times of the national reasonable housing vacancy range (generally is 5% - 10%). Because of that, many scholars and reporters are paid attention on the housing vacancy problem in China and found out the even more serious truth. March of 2010, Jiyang Liang (CPPCC National Committee member) point out this at least 40% land out of real estate development land is still cornered by land agents, and the housing vacancy rates of some large cities in China are reached 50%.  The video below is documentary by SBS Dateline (Australian TV) which is talks about the vacancy problem in China.

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However, in the meantime, the observation is seriously against and boycotted by real estate developers. Zhiqiang Ren (the board chairman of Hua Yuan Group which is a famous real estate agency in China) argues that the housing vacancy rate in China is only 4% which indicates that there are no bubbles in Chinese realty business.

25% or 4%, which is right? To be honest, I don't know the 25% is right or not. Through calculate price-to-rents ratio and price-income ratio, I can absolutely make sure that 4% is totally wrong. In general, the price-to-rents ratio should around 1/200 and couldn't lower than 1/250, which means that we can withdraw our investment funds with 200-250 monthly rents. In other words, this kind of investment is valuable, if not, then the investment is loss or in long-term depreciation which is no investment value. However, it in Shenzhen is lower than 1/500 and in Shanghai and Beijing is around 1/480. Therefore, the real estate in China actually has no investment values. The price-income ratio is another important tool to evaluate the bubbles in real estate. This ratio in Beijing is 1/20 and in some cities is around 1/40 which are obviously higher than the national reasonable range (1/3-1/6). Based on the comparison of two ratios above, the result is clearly showed out the 25% housing vacancy rate should be a reasonable estimate and there are serious bubbles in Chinese real estate.