Commercial real estate problems spreading

I got out of commercial real estate some time ago and noticed that prices have not moved much since then. They may well be on a downward slope now as prices are falling around the world:


Thanks for posting that.

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And certainly a concern in the US. Chairman Powell has addressed this situation. He thinks it is manageable. But some banks may be stressed by loans that are larger than current asset value. Plus the problem of refinancing at much higher interest rates.

Do we call the buildings zombies? Just like the stocks that own them?


Perhaps orthogonal to the discussion, but China is falling back on old prescriptions:

China Revives Socialist Ideas to Fix Its Real-Estate Crisis

Xi Jinping aims to put the state back in charge of the crumbling property market, part of a push to rein in the private sector

China’s massive [property market is crumbling]. Xi Jinping wants to revive socialist ideas about housing and put the state back in charge.

Home prices across China [are falling], developers have gone bust and people are doubting whether real estate will ever be a viable investment again. The meltdown is dragging down growth and [spooking investors] worldwide.

Under the new strategy, the Communist Party would take over a larger share of the market, which for years has been dominated by the private sector. Underpinning it are two major programs, according to policy advisers involved in the discussions and recent government announcements.

One involves the state buying up distressed private-market projects and converting them into homes that the government would rent out or, in some cases, sell. The other calls for the state itself to build more subsidized housing for low- and middle-income families.

The Chinese (proposed) solution would take “common ownership” up from the current 5% to nearly 30% to absorb the excess properties built by speculators throughout the country, and which employment provided a good part of the prosperity over the past decade or so.

If I understand correctly, the nation’s government would take ownership and lease or rent the properties, rather than the solution we have seen in the US which is to buy the distressed properties and then wholesale them to private investors as was done by Resolution Trust and other agencies during the S&L and more recent banking fiasco of 2008.

It appears the Chinese experiment with “free market” has gone too far, at least in the thinking of the Party:

The plans line up with Xi’s broader push in recent years to [expand party control] over the economy and rein in the private sector. That push has included regulatory crackdowns on technology firms such as Jack Ma-backed Ant Group and more investment in state-owned enterprises in preferred industries such as semiconductors.

If true, this portends a major shift in the dynamics of the country over the next decade, and while the effects might not be seen immediately there is a reasonable chance that it will change outcomes in a way that current linear projections cannot foretell.


That’ll likely have unintended effects. Because, as far as I read, the issue isn’t only developers that went bust, but also that they built too much, or at least too much in the wrong places. Add to that, a declining population, and an aging population, and you have less natural demand to begin with. If the government takes over and starts renting places, presumably the government will rent with a subsidy of some sort, then some people who are renting privately elsewhere will choose to take the less costly apartments instead … leaving vacancies in the private rental market … leading to lower prices in the private rental market … leading to slower business in the private rental market. Make that effect big enough, and what you’ve accomplished is to move your “crisis” from one place (overdevelopment) to another (diminishing the private rental market).

Of course, it could be intended, and they want the housing market to, by and large, be government controlled. But I doubt it. Deep in their communist hearts, they know that their miracle of continued high economic growth depends on private sector growth, and stifling one of the main drivers of private sector growth will cast a pall on any other private sector growth, and the behavior of the people will almost immediately follow. The China miracle will rapidly be over.

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Which caused mass speculation in the growth of properties with no occupants. No occupants because there were no more buyers of unoccupied complexes. No buyers = no additional money to the company = construction stops = unfinished units never get completed = CRASH.

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Not according to the stuff I’ve read. The thing that most contributed to the overdevelopment was that GOVERNMENT forced a situation in which local governments could only raise operating funds by selling/permitting property for new development.

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…and a lot of that local government income went into private pockets that “flew away” to e.g. Vancouver etc and bought Real Estate there.

Corruption and stupidity have sown a field of disasters. I do not see a way out without a lot of rage, hard worked retired populace angry with poverty retirments, and possible massive civil conflicts.

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