China’s housing glut may foreshadow the future of Japan’s real estate

China’s housing industry seems to have reached breaking point.Sales volumes in 24 cities fell by 44% in the first week of 2019, compared with a year earlier. Only the four largest cities saw an increase. While the number in itself is concerning, more worrying is the fact that many of these units are brand new and have never seen a tenant. Whole residential communities on the outskirts of China’s tier two and three cities are turning into ghost towns before they ever come to life. It is a peculiar case, as the vast number of empty apartments, on the one hand, suggests gross oversupply, but on the other hand young Chinese people – especially men, who are culturally pressured to buy a home to attract a spouse – can simply not afford apartments. Between 2015 and 2018, prices have surged by over 40% in some cities. This oxymoron of overpriced oversupply has seemingly been caused by a real estate industry of bad players that developed at break-neck speed and without much foresight. In fact, Moody's Investors Service has assigned junk status to 51 of the 61 Chinese property companies it assesses. One might worry that Tokyo’s real estate market will fall victim to a similar fate. After all, redevelopments are mushrooming all over the city here as well, prices are on the rise, and at the same time, the Japanese population is falling.