Finance Monthly - October 2021

42 Finance Monthly. Bus i ne s s & Economy The road to disaster As always, a couple of factors need to fall into place perfectly for such a giant crash to happen. • Overbuilding In 2009 hedge-fund manager Jim Chanos famously claimed that China is “Dubai on steroids”. Maybe that’s because every year since, more than 10 million new home units have been sold… every year. That number is five times higher than the US and EU combined. Just looking at it from afar and seeing pictures of China’s ghost towns (towns full of uninhabited residential skyscrapers), one can see that something is not right. But why is that boom lasting for over a decade now? The answer many people point to is the lack of an alternative. Due to the many regulations the government has placed on the finance industry, it’s very difficult for retail investors to invest in anything else other than real estate. That’s why it was commonplace to see people buying 4–5 homes. Ever since, ordinary people have been fighting to circumvent every possible restriction on buying more homes. When the government introduced a restriction on married couples buying only one home — people started divorcing to buy more. The demand in big cities was so feverish that lotteries were introduced, with chances of buying a home as big as 1 to 60. Though greed is rampant, and people are buying property hand over fist, simply because they are confident it will go up in value, developers have built so many units that can’t possibly be inhabited, even if they were free. Currently, the official property vacancy rate stands at 22%, though some analysts claim it’s way higher. • Demographics There’s only one world in which such overbuilding could have been justified. In a situation where the population was rapidly growing, an argument could’ve been made that there’s a chance for all of these homes to find their inhabitants eventually. Though looking at China’s demographic picture today, that’s difficult to imagine. The UN analysis shows that the Chinese population would peak in 2030, citing census data. Though, some analysts are suggesting that the population has already peaked in 2020. A quick takeaway, do you know which country’s demographics also peaked during a real estate 0 10 20 30 40 50 60 70 70 60 50 40 30 20 10 0 in millions Zeihan on Geopolitics © 2017 Credit: Peter Zeihan 0 10 20 30 40 50 60 70 70 60 50 40 30 20 10 0 in millions Zeihan on Geopolitics © 2017 Credit: Peter Zeihan