Too Much Speculation Is No Good
A report from The Times of India. “Market insiders said competition in the housing trade has become cutthroat with supply exceeding demands. ‘An estimated 1 lakh housing units worth Rs 15,000 crore are on the pipeline in and around the city. These houses would be ready for possession within the next three to four years. Booking, however, is not more than 30 per cent now,’ a real estate trader said.”
“Speculative buyers from both inside and outside Odisha had made a beeline to buy houses in Bhubaneswar following the hype in industrial investment in the state a few years ago. Several people had even invested in second and third properties in the city. ‘Buyers had then thought that prices of property would escalate due to the promise of big industries setting shop in Odisha. But the situation has changed,’ said Anup Mohapatra, a developer. ‘Till 2007-08, at least 30 per cent clients were IT professionals who make quick purchases round the year. Now, IT companies are not adding significant new workforce while majority of the existing ones have already invested in real estate.’”
The Malaysia Chronicle. “People buying investment property in Malaysia should take a long term view and avoid ‘flipping’ homes for the good of the country’s property market. That’s the view of the Real Estate and Housing Developers Association of Malaysia (REHDA) who believe that too much speculation is damaging the country’s property market. Datuk Ng Seing Liong, REHDA’s past president, said: ‘We, as developers, we also don’t want them (speculators) to come and buy to flip. Too much speculation is no good. Don’t rush into property,’ he said. ‘It is a long-term investment.’”
“The comments come after widespread complaints that speculators or ‘flippers’ have been responsible for pushing up property prices in urban areas, crowding out genuine homeowners and investors.”
NZ Week reports on Singapore. “The strong demand for residential property in Singapore is likely to persist as interest rates stay low amid the monetary easing in the United States and Europe, National Development Minister Khaw Boon Wan said on Monday. There will be a significant supply of residential properties in Singapore over the next two years, he said.”
“‘With the recent announcements of further monetary expansion in both U.S. and the eurozone, the current low interest rate environment is likely to persist. This will continue to contribute to the strong demand for residential property, which could cause prices to rise beyond sustainable levels,’ he said.”
From Vietnam News. “HCM City authorities are looking for ways to revive the city’s property market, as nearly 900 of 1,108 property projects have been left unfinished because of financial problems. According to figures released by the city’s Construction Department at a meeting last week, the property projects comprise a total of 165,079 apartments in 23 districts. Nguyen Thanh Tai, former deputy chairman of HCM City, said the stagnant property market was caused by inappropriate business strategies on the part of developers and an imbalance between supply and demand.”
“Tai said that to develop all of these property projects, a huge capital source was needed. However, many enterprises are financially incapable and have to depend on bank loans and contributions from home buyers. As a result, they face difficulties when the market liquidity runs low. According to a study conducted by Dragon Capital, Ha Noi and HCM City each have 35,000 unsold apartments. It would take seven years for the two cities to sell these apartments, the report said,”
“Despite several cuts, apartment prices remain too high for low-income residents, and there are few low-cost houses on the market for low – and medium-income buyers. This is why many apartments remain unsold, although residents badly need accommodations.”
The China Post. “The government’s anti-speculation measures have caused a freezing of capital in the real estate market, where a sales decline may continue, said Yen Ping-li, president of DTZ Taiwan, yesterday. Right now, only life insurance companies have the money to buy properties, he said. ‘Frozen capital may result in continued sales decline in the real estate market, which is in for a cold, bitter winter,’ he said. ‘Not only brokerage firms will close their businesses, some developers may also have to sell their assets just to survive,’ he added.”
“According to him, various crackdown measures launched by the government, including credit control and the stock capital gains tax, have diminished Taiwan’s stocks and real estate, which he described as the two lifelines of the island. The credit control measures have strongly impacted sales as loan reductions and interest rate increases have devastated even those who buy properties for residential purposes, he said. Yet paradoxically, prices have remained high even as sales have gone down sharply. Yen attributed this phenomenon to the fact that, in the midst of a low-interest environment, sellers are in no hurry to sell their properties.”
“‘I don’t know why the government keeps launching measures that suppress these two industries,’ he said.”
People’s Daily on China. “A growing number of people take a wait-and-see attitude because of soaring property prices and the fact that a great deal of market demand has been met in the past few months, ‘I do want a small apartment in Beijing, but the current price is now beyond my reach,’ said Huang Ying, a 28-year-old company executive.”
“She took a fancy to a one-bedroom apartment along the southern Third Ring Road. However, as the unit price has increased nearly 30 percent over the past three months, she could no longer afford the down payment. Some buyers, however, expect that there might be some policy fine-tuning in the real estate sector later this year.”
“‘Since the price has jumped more than 30 percent this year, I would rather wait to see if the government will take more measures to curb price growth,’ said Zhang Lian, a retired teacher who plans to buy an apartment for her son.”
The Epoch Times on China. “Local officials in the Chinese Communist Party have violently and forcefully evicted people from their homes and property before seizing them in an attempt to make up for local budget shortfalls, according to a report from Amnesty International. ‘Local governments have borrowed huge sums from state banks to finance stimulus projects and now rely on land sales to cover the payments,’ giving them a reason to evict locals, the group said.”
“Of the 40 forced evictions it examined, Amnesty said nine resulted in the deaths of people who were protesting against them. For example, a 70-year-old woman, Wang Cuiyan, was buried alive by an excavator in March 2010 when a crew came to destroy her home in the city of Wuhan. Some people, facing such pressure, have even set themselves on fire in protest, the group added.”
“In a recent example, a home belonging to a Uyghur family in the northwestern Xinjiang region was bulldozed and their land taken after the family rejected what they saw as inadequate compensation from local authorities. Radio Free Asia reported that the family petitioned for more than three years against the plans. ‘We asked them to appraise our house fairly, but they did not listen and simply bulldozed our home,’ Rebiya Yusup, whose family home was destroyed, told the broadcaster. She later broke off contact and might have been detained by police, RFA said.”
“At the same time, the Chinese Communist Party is enabling local officials to carry out the evictions by promoting them because they were able to achieve economic growth, even if by an any-means-possible approach, Amnesty said. Authorities usually do not consult with the local residents, nor provide housing for them, as required by international law. Compensation is also often inadequate, while cadres stand to make a killing by quickly selling the property on to real estate developers.”
“‘Local governments and property developers frequently hire thugs wielding steel rods and knives to rough up residents,’ Amnesty said, adding that ‘police hardly ever investigate such crimes.’”
The Bull on Australia. “A property slowdown in China is altering the list of who’s who in China’s billionaire ranks. Property is no longer the top source of wealth for Chinese billionaires, losing out to those engaged in manufacturing-type businesses. Could the same happen in Australia? Australia has ridden on the wave of the China boom for well over a decade – and according to researchers at the IMF, a 10% improvement in our terms of trade lifts Australian property by about 5%.”
“However, what happens when our terms of trade takes a reverse course? Australia’s trade balance has been in deficit every month now since January this year. Our exports to China have declined by 20% since May – taking $1.5 billion from our export revenue. In August just gone, we recorded our worst trade result in over four years – it blew out to $2 billion, almost three times higher than expectations.”
“Over the past few weeks TheBull has put the question to readers: is the Aussie property market about to face a profound correction, or has it already bottomed? Burak Mete, a derivatives investor, agrees that declining exports are a sore point. ‘The fact that mining glory days seem to be over makes [labeling it] a so-called [property market] bottom a very optimistic outlook.’”
“Duncan Mcleod, director of MAA Livestock & Property is in the front seat when it comes to assessing property values. He says that rural land in regional south western Queensland has fallen 10-30% depending on the land usage and whether there is gas involved. ‘We have been looking for a house on the Sunshine coast area from Coolum Beach to Noosa. Values for sub $400,000 have remained strong, $450,000-$750,00 weaker, $750,000-1m weaker again, while above $1m is shocking.’”
“Agents cite lower interest rates as one factor that will save the property market from collapse. The RBA has dropped 75 basis points from the cash rate since March – and further cuts are likely. Offshore experience shows, however, that lower interest rates can only do so much. The US and European countries have kept interest rates at near zero levels for years while property prices have continued to stagnate.”
“The Bull reader John Bowman says that the ‘long term outlook for property is not good.’ However he adds that high house prices are really only good for banks (lending of credit), the government (taxation and stamp duty) and real-estate agents (commissions). ‘Home buyers pay the increase!’ he concludes.”
Reading all these articles.
The whole world went insane with easy/cheap money and housing bubbles.
Now - no one wants to pay for the bill or suffer the hang over.
It seems (5 years later) that only ICELAND took the correct approach.
It’s gonna be interesting to watch:
‘China’s economic downturn represents the beginning of a “new normal” investors will have to adjust to, Dr. Wang Qing of the China International Corporation told CNBC on Tuesday. Markets have been focusing too much on how slowing external demand is impacting the Chinese economy, rather than looking at China’s changing domestic housing policy which is denting Chinese growth, according to Qing.’
‘In his view “the single most important factor in explaining China’s slowdown and the weak demand for commodities is the draconian housing policy the Chinese government has been imposing to try and deflate housing prices since the second half of last year.”
‘China’s policymakers recently have been trying to revive economic activity by easing monetary policy. Early last month the Chinese government stepped up stimulus plans to revive economic growth by approving 60 infrastructure projects worth more than $150 billion, and earlier this year the Chinese government announced plans to start constructing 7 million public housing units and complete 5 million units.’
‘In China, shadow banking has mainly taken the form of a large amount of wealth management products, or WMPs as they are known, underground finance and off-balance-sheet lending. Chinese banks work closely with trust companies or other entities by packaging trust loans into WMPs, offering investors a higher yield than conventional bank deposits can.’
‘Many of the funds that were obtained through these channels went into real estate development, infrastructure projects, the manufacturing sector and local government financing vehicles. There are more than 20,000 WMPs in circulation, a dramatic increase from only a few hundred just five years ago. Given that the number is so big and hard to manage, China’s shadow banking sector has become a potential source of systemic financial risk over the next few years. Particularly worrisome is the quality and transparency of WMPs. Many assets underlying the products are dependent on some empty real estate property or long-term infrastructure, and are sometimes even linked to high-risk projects, which may find it impossible to generate sufficient cash flow to meet repayment obligations.’
‘Moreover, many WMPs are not even linked to any specific asset, rather, just to a pool of assets, whose cash inflows may often not match the timing of scheduled WMP repayments.’
‘China’s shadow banking is contributing to a growing liquidity risk in the financial markets. Most WMPs carry tenures of less than a year, with many being as short as weeks or even days. In fact, when faced with a liquidity problem, a simple way to avoid the problem could be through using new issuance of WMPs to repay maturing products. To some extent, this is fundamentally a Ponzi scheme. Under certain conditions, the music may stop when investors lose confidence and reduce their buying or withdraw from WMPs. The rollover of a large share of WMPs could weigh heavily on formal banks’ reputations, because many investors firmly believe that banks won’t close down and they can always get their money back.’
‘Economic slowdown, combined with widespread equity price declines and relatively subdued housing markets in several countries, has produced the worst environment for wealth creation since the financial crisis, according to the Global Wealth Report by Credit Suisse Research.’
‘In India, property and other real assets made up 84% of estimated household assets, according to the report.’
‘Aussie Home Loans boss John Symond has dismissed concerns of a property bubble building in Australia and says the housing market has reached 6.30 on the property clock and is on the road to recovery. Speaking at an Australia-Israel Chamber of Commerce function in Brisbane this week, Symond slammed the monetary policy decisions of the Reserve Bank, accusing the current board, led by RBA governor Glenn Stevens, of being ‘asleep at the wheel’. ‘I am confident, notwithstanding a lot of hype from offshore analysts about a housing bubble, of Australia’s fundamentals,’ Symond said.’
‘Symond dismisses the threat of a housing bubble and says interest rates are too high. He believes the housing market is a healthy state and the housing market has bottomed out.’
‘Symond says demand from Asia will help underpin the value of the Australian property market. ‘Don’t underestimate the impact of Asians buying our residential property. They send the kids to our universities, find out it’s a great country and buy a small apartment, then buy a house,’ he said.’
For good measure, the Chinese stock market also is crashing.
China’s stockmarkets
Like it’s 1999
Why does the world’s most dynamic economy have such a moribund stockmarket?
Oct 13th 2012 | HONG KONG | from the print edition
CHINA’S stockmarkets sit in what is still one of the world’s fastest-growing economies. In the past year they have also fallen under the wing of one of China’s more vigorous policymakers: Guo Shuqing, who was appointed head of the China Securities Regulatory Commission (CSRC) in October last year. Yet since his arrival the markets have fallen by more than 14%.
During trading on September 26th they suffered a fresh indignity. The Shanghai Composite, the benchmark index, fell briefly to 1,999 points, a level it had first reached more than 12 years ago (see chart). Over that period, China’s GDP has more than quadrupled in nominal terms.
During his first year in charge, Mr Guo has set about cracking down on insider trading, cajoling firms to pay dividends, opening the door to foreign investors, uprooting rotten companies from the exchange, and encouraging better firms to list on it, at better prices. In a year of political transition, when little was expected of China’s policymakers, he has been a “reform tornado”, according to China Economic Quarterly, a journal published by GK Dragonomics, a consultancy based in Beijing.
But disgruntled investors say such efforts are “all thunder, little rain”. The CSRC is always talking about reform but the market does not improve, complained one investor to an online CSRC forum.
China’s stockmarkets are certainly in need of reform. They have been a meagre source of capital, providing only 3.4% of the finance that companies raised last year. They have provided a poor proxy for the economy for investors keen to take a stake in China’s rise. For almost 20 years politically favoured companies listed at inflated prices, raising money from outsiders (including foreigners) to redistribute to insiders. The exchanges provided a spoils-market, not a stockmarket.
“China’s stockmarkets are not really about money (that comes from the banks),” wrote Fraser Howie and Carl Walter in 2011 in “Red Capitalism”, a book about China’s financial markets; “they are about power.”
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And why are rich Chinese walking billions out of the country and buying up real estate?
Diversification…
and earlier this year the Chinese government announced plans to start constructing 7 million public housing units and complete 5 million units.’
Just what China needs…. build more ghost cities just to employ people. Wouldn’t they be better off to build a manufacturing and/or technology center in the ghost existing cities, and then invite the population to move there? Perhaps some system where half the population works and the other half (retired parents) lives on a small income and supports the lucky ducky industries that are sure to spring up.
It’s worse than that:
‘China has basically completed construction on 4.8 million affordable housing units in the first nine months, bringing the country one step closer to hitting its annual target of completing 5 million such units, the country’s housing authorities said Friday. The country has achieved its goal of starting construction on more than 7 million units this year as part of its five-year plan to build 36 million such units by 2015.’
http://english.peopledaily.com.cn/90882/7976052.html
This is the ‘we’ll build our way out of the bubble’ approach. The idea is they will keep these construction companies and employees working.
They’re trying it in Australia too:
‘Major changes to SA home buyers’ grants announced yesterday will save hundreds of jobs through the building of an extra 2300 homes next financial year. In a State Government package of reforms, grants of $8500 to buy a newly built home would be available to everyone, not just first-home buyers, Premier Jay Weatherill said. In addition, first-home grants on new homes would more than double from $7000 to $15,000.’
‘However, grants for first-home buyers of established houses and apartments would be cut immediately then eliminated completely. Speaking at a Committee for Economic Development of Australia forum, Mr Weatherill said the home building sector was doing it very tough.’
“This is unashamedly about trying to kickstart investment in new-built homes,” he said.’
http://www.adelaidenow.com.au/business/cash-boost-for-sa-home-buyers/story-e6frede3-1226496344206
All of this in response to an ever larger bubble created by previous stimulus programs in China and Australia.
The US, Australia and Canada have another variation; ‘we’ll lend our way out of the bubble.’ (Of course, in the US this goes along with the ‘we’ll hide the bubble under a bush’ program, which was also tried in Japan).
I’ve likened these approaches to a cat climbing a tree. The cat, seeing how far down it is, climbs even higher, then higher again. But there’s only one way to go; down.
‘The country has achieved its goal of starting construction on more than 7 million units this year as part of its five-year plan to build 36 million such units by 2015.’
I thought Five Year Plans went the way of the former Soviet Union, but now stand corrected.
“This is the ‘we’ll build our way out of the bubble’ approach. The idea is they will keep these construction companies and employees working.
They’re trying it in Australia too…”
At least it’s different here in America.
Oh wait…
October 17, 2012, 3:59 PM
Housing Recovery May Validate Fed’s QE3
By Michael S. Derby
Legitimate signs of life in the housing market suggest the Federal Reserve may have chosen the right lever to stimulate the economy when it launched its latest stimulus bid last month.
In September, officials on the monetary policy-setting Federal Open Market Committee decided to embark on an open-ended program of mortgage bond buying, in an effort that will increase what is now a nearly $3 trillion central bank balance sheet. The purchases follow in the tracks carved out by past asset-buying efforts, which had relied more heavily on the purchase of Treasurys.
Many Fed officials reckon that as the housing market’s problems have been a big reason why the recovery has been so tepid, targeting the sector with direct aid can make a big difference for the broader economy. Policymakers hope positive housing momentum will help overall activity rise, which in turn should help boost job growth and lower unemployment.
An increasing amount of data suggests the Fed may indeed have targeted the right part of the economy for assistance. On Wednesday, the government reported that new home-building levels surged to a four-year high last month, amid a nearly 12% rise in new building permits. While the rise in activity is not attributable to the new Fed stimulus, it owes in part to past stimulus by the central bank.
The central bank “does deserve a lot of the credit” for creating the conditions that are allowing the housing market to get itself back on track, said Zack Pandl, economist with Columbia Management.
What’s now being seen in housing is “the cumulative effect of the five-year-long easing campaign. Rates are down here for a reason,” Mr. Pandl said. He said the sector is also benefiting from demographic trends that support new building, as well as the fact a lot of potential housing inventory remains off the market due to ongoing legal problems related to the financial crisis.
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“Now - no one wants to pay for the bill or suffer the hang over.”
Yep. This happens in every bubble, but before, the bubbles weren’t worldwide and across all sectors of society… because this bubble is the unholy union of housing, banking and government, which most civilized nations have. This is the biggest financial crash in all of Human history, hence must be followed by the biggest delusions in all of Human history. This will just keep getting worse and worse, and will run headlong into the Petroleum Starvation period of Humanity. Then it will get much, much worse.
So it will be a crash and burn without precedent, perhaps on the scale of the Black Death in terms of overall Human suffering. While billions watch their economies collapse, they will reach out for any possible growth, but accelerating petroleum depletion will reduce growth to zero, and then start the contraction phase. Serious wars logically must occur; these wars have already started with the Western occupation of Iraq and Afghanistan, and the coming invasion of Iran… all oil-source or oil-transporting nations, by no coincidence.
“This will just keep getting worse and worse, and will run headlong into the Petroleum Starvation period of Humanity.”
You had a great start, but then you lost me right there. I don’t see how Petroleum Starvation is a natural consequence of a massive housing bust.
If anything, the natural consequence would be for oil and gas prices to eventually take a breather, assuming the never-ending monetary stimulus ever gives in to fundamental economic reality, at which point humanity may find itself with a bit more time available to explore alternative future energy bases besides the current oil-based regime.
I don’t see how Petroleum Starvation is a natural consequence of a massive housing bust.
It isn’t. It’s merely bad timing. Economic growth is now dead, for many decades, worldwide… since the housing bubble recovery effects will just happen to collide with critical petroleum depletion effects. There can’t be a recovery.
Of course more esoteric economic links may show causation. The peaking of cheap energy supplies might have given the spur to pervasive bubble thinking. I dunno. That sort of analysis is above my pay grade.
Addendum: alternative future energy bases
Well, there aren’t any. Nothing humanity has ever discovered can deliver the massive energy punch of cheap, dense, practical supplies of petroleum found in liquid deposits. Nothing beats oil for the three factors delivered all at once: It’s dirt cheap, it’s energy dense, and it’s very practical (to obtain, transport, store and use). Coal, natural gas, nuclear, hydrothermal, solar, wind… none of those can match oil’s three factors. Only natural gas comes close…. but it’s yet another fossil fuel and we’ll run out of those supplies, too.
It’s all part of our Fossil Fuel Inheritance. Like all inheritances, you get it once. And if you spend it profligately (as we are), then when it’s (soon) gone, you look around and see that you’re F#$%&D.
“Tai said that to develop all of these property projects, a huge capital source was needed. However, many enterprises are financially incapable and have to depend on bank loans and contributions from home buyers. As a result, they face difficulties when the market liquidity runs low. According to a study conducted by Dragon Capital, Ha Noi and HCM City each have 35,000 unsold apartments. It would take seven years for the two cities to sell these apartments, the report said,”
Can’t the Vietnamese central bank run their printing press faster in order to provide funding for these projects? (I know they have a printing press, because I have some Vietnamese currency in my wallet…)
So if the IT industry in India is slowing, have we reached peak outsourcing??
Slowing the rate of growth doesn’t mean you have started to go down. You just aren’t going up as quickly.
China’s housing rebound pauses
October 18, 2012, 2:08 AM
The rebound in China’s housing market has hit an air pocket, according to data for September, released Thursday.
Of 70 cities tracked, 31 urban centers saw price gains during the month, down from 36 cities that reported gains in August, according to National Bureau of Statistics data reported by the Xinhua News Agency.
Prices were lower in 24 cities for the month, compared to 20 cities where new homes prices fell on average in August. Prices were unchanged in 15 cities, whereas 14 had no changes in August.
Researchers at Also Sprach Analyst said in online commentary posted Thursday that the data showed recovery in China’s housing market is “probably moderating.”
HSBC on Thursday cautioned that Chinese homebuilders shares in Hong Kong were due for a “a breather,” as the Chinese government appears set to reapply policy brakes on rising home prices in the remaining months of the year.
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I totally agree with the points raised in the article posted below, at least as far as I have read it. What seems unclear is how a saver finds shelter in financial markets buffeted by occasional hurricane-force winds that result when central banks attempt to print their way to prosperity in a globalized economy.
The Daily Reckoning
Stock Market Capitulation
By Greg Canavan • October 18th, 2012
Just as there is capitulation selling to the downside, there is capitulation buying to the upside. That is, people just give in to their emotions and sell or buy, depending on the prevailing mood. There’s no real rational analysis involved, just a tremendous urge to join the herd. Humans have an innate desire to ‘herd’.
We think we’re getting close to a ‘capitulation to the upside’ moment. We don’t know why, it just feels that way. Maybe it’s because we think it’s insane to believe that stock prices will move inexorably higher from here, never to return to these levels.
If there’s one lesson to learn from the post-2008 stock market, it’s that it’s trendless. The natural tendency of the market is deflationary, which pushes asset prices lower. The natural tendency of a central bank is inflationary, which pushes asset prices higher. It’s a constant arm wrestle.
Since the 2008 bust, central bankers and their political brothers have been successful in their efforts to reflate global asset markets. But this ’success’ has come with a massive price tag…an explosion of government debt that will never be repaid.
The most recent coordinated central bank reflation effort has proved very successful, if by success we mean juicing up global equity markets for a few months. They are clearly winning the short term arm wrestle. But we sense nature’s deflationary impulse is powerful and determined, and will fight back just as soon as the stock market sucks enough people back in.
This just goes to show the futility of central bank policy. It’s a policy designed to artificially boost stock markets. It’s easy to see the positive and immediate benefits of this….stock prices go up, and we all feel ‘richer’.
But what you don’t see is the damage to the ‘integrity’ of the markets. The damage to the global commodity we call ‘money’…the reward for speculation over hard work…the arbitrary enrichment of a part of society to the detriment of another. These things all have major, major long term implications. They will raise their head soon enough.
Overnight, some guy reportedly tried to blow up the New York Federal Reserve. The fool should have waited a few years and watched them do it themselves. Because that’s where we’re heading. Central banks are actively packing the dynamite under their own foundations. They’re sending us straight into another crisis.
But that outcome might still be a year or two away. In the meantime, how will you know that this stock market rally is nearing it end?
Don’t expect things to change in the years ahead. It’s just set to get more bizarre. Like today, with markets surging on scant new news. Capitulation to the upside? It sure feels like it.
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A Surreal Skateboarding Journey Through China’s Infamous Ghost Town
By Alessandra Ram
Oct 15 2012, 4:36 PM ET
In this video, director Charles Lanceplaine follows a group of skaters looking to try their tricks in a new and different environment — only to discover a glittering, modern city devoid of human occupants.
Originally built to house one million residents, the city of Ordos in northern China is now almost completely deserted. Despite China’s much-lauded building boom, soaring property prices have kept occupants at bay. Ordos is now the largest ghost town in China — thought to be a stark example of China’s impending real estate bubble.
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