In recent years, the media have given ghost town a new definition: a new city that has been built and ready for resident occupation but no one moves in. It has been abandoned even before any habitation.
Beihu Gulf Economic Zone the next hotspot?
The story below is from a new documentary about urbanization in China.
In the northern part of Guangxi province, there is a new economic zone known as Beibu Gulf (北部湾) which has three major cities: Fangchenggang (防城港), Qinzhou (钦州) and Beihai (北海). In 2013, Premier Li Keqiang inspected the zone and announced that it will be developed into third-tier cities. This sparked the rapid building of residential projects, industrial parks and commercial districts at rocket speed.
The story of Fangchenggang
Fangchenggang was originally a negligible town with a population of less than 500,000 and an annual growth of less than 5,000. But after the announcement of the development plan, it was looked upon as the next hotspot. More than 110,000 new residential units were built in a short period of time.
An investor from Jilin bought ten units in one project there. He didn’t want to miss the last train like what he had after the opening of the first and second-tier cities. Property prices in Fangchenggang had since increased from RMB200 psf to almost doubled in three years’ time.
One by one the new projects are completed. But the place still looks empty. At where the Jilin investor bought, only one percent of the units have lights on at night. The new hotel is no better. Some rooms are rented out for commercial use.
Nonetheless, for projects under construction, tour groups with investors from other provinces are still coming in droves to visit the sales galleries every day. Developers market Fangchenggang as the nearest city to the ASEAN–China Free Trade Area. But in reality, there are mainly heavy industries in the city.
Situated along the coast, productions are from nuclear power, non-ferrous metal, and iron and steel industries. Because of overproduction of iron and steel in China, profit has dropped from 1,000 dollars to 43 cents per ton. Consequently, a large empty factory site is left behind.
The story of Qinzhou
Part of the sea in Qinzhou has been reclaimed for a big piece of land. There are tax protection, an industrial park, the tallest hotel, a golf course, a hospital, and even a university to attract outlanders from other provinces to work and live there.
In the last five years, population has increased by less than 10,000. But developers have already sold over 90,000 residential units. A foreigner who has been working in the city for three years mentioned that he is usually the only one using the lift in the entire block because there is no neighbor. He can’t even catch a taxi because taxi drivers think there is no one living there.
The locals are mainly staying in the low-rise apartments in the old part of the town. Most are making less than RMB2,000 per month. There is no way that they can afford those new projects going for RMB300 psf. Residential blocks are building higher, but people’s earning power are not getting any higher.
Since the opening of the country, local government in different provinces are competing with each other for a higher GDP. They believe that GDP can be increased by building of new cities and residential projects. This results in a proliferation of both, but no one cares to do any town planning. There is a lack of industries to support the new cities which is difficult to attract residents from nearby areas to move there.
The story of Beihai
Beihai has been transformed from a fishing village to a tourist spot. The property craze there started since the early 90s when developers rushed to build new projects. Many developers, buyers and speculators believed in the future of Beihai. The population of outlanders had grown to two times that of the locals. Property prices also shot up to RMB500 to 600 psf.
Then the Chinese government decided to intervene by imposing restrictions on bank financing. After the property bubble burst, one by one the foreign companies left the place. With the waning of the Beihai legend, property prices slumped 95 percent to RMB20 to 30 psf. Many projects were abandoned half-way. Some projects were even destroyed by being blown up.
The same bungalow in default could be put in court by the developer, the bank and the owner. The same property could be seized by order by more than fifty courts at the same time. Construction work could not take place because ownership right was not granted.
Many bungalows have been left behind since 1993 and 1994. Till today they are still uncompleted with windows but no doors. The locals are now using the abandoned houses to rear chickens. The completed ones are being converted into motels with 30 to 40 percent occupancy rate.
Twenty years later, Beihai is now identified as a new city for development again. Developers all shape up to build new projects there. Prices have since risen to RMB400 to 500 psf. However, transaction volumes have been falling since last year. It is expected that the leftover units need at least five years to be digested.
Ghost Town Top 50
In China, the media have devised an indicator known as Ghost Town Index which is calculated based on area size and vacancy rate. There is also a chart with a list of top fifty ghost towns in the country.
Ordos in Inner Mongolia tops the list with a Ghost Town Index of 0.07. A normal city should have 10,000 residents living in every square kilometer. But in Ordos, there are only 700 residents per square kilometer. The three major cities in Beibu Gulf are also in the list. Qinzhou is currently number two with an index of 0.26. Fangchenggang is 17th with an index of 0.44. Beihai is not that far behind with an index of 0.52 at position 39.
Disserted properties are plentiful in third and fourth-tier cities in China. Perhaps one day local developers will package them and market to Singaporeans.
Lessons learned from China’s ghost towns
Whenever a government announces any infrastructure development – be it a transportation node, a new hub, an up-and-coming town, or the next big thing – and when developers all jump on the bandwagon to push new projects, ask yourself three questions before you buy into that property hotspot:
1. What are the industries there and how can they support the growth of the local economy?
2. How is the salary growth of the existing population compared with the hike in property prices?
3. Where is the new population coming from and how fast can it grow?
If you can’t find satisfactory answers to these questions, you may be buying into the next ghost town.