going global™ consulting jane chen, osvaldo morales, nicole linderman, xiaosu tang solving...

GOING GLOBAL™ CONSULTING

Jane Chen, Osvaldo Morales, Nicole Linderman, Xiaosu Tang

Solving China’s greatest real estate dilemma

Introductory Analysis

Analysis Problems Solutions Implementation Conclusion

A recent phenomenon in modern China, “Ghost Towns” are partially or fully developed areas intended to house millions of residents but are virtually deserted. These ghost towns starkly contrast with the “overcrowded and inflated living arrangements available within cities such as Beijing and Shanghai”.

Ordos City

Jingjin

Huizhou

Going Global™ Consulting

China’s Top Ghost Towns

1. Ordos City (Inner Mongolia): The district was developed to house over 1 million people, yet less than 20 thousand people live there. The area is filled with office towers, administrative centers, government buildings, museums, theaters, and sports fields.

2. Jingjin New City (between Beijing and Tianjin): The development covers more than 54 square kilometers, boasting a five-star hotel, a golf course, a museum, and numerous entertainment facilities. Its occupancy rate is less than 10%



Problems

• China’s growth has occurred predominately in large metropolitan areas, and not as much in rural areas and smaller cities.

• Investors and land developers who put faith in these ghost cities lost an incredible amount of money, with many situations resulting in suicide.

• There exists a mismatch of supply and demand; many Chinese are in need of affordable housing but lack sufficient incentive to relocate to ghost towns.



In the Dayawan Grand Canyon, only 2 apartments have lights on in a complex containing 2380 apartments

Causes

Asynchronism

3 Lack of infrastructure in ghost town areas

Lack of basic

necessities and social services

Chinese families

unwilling to relocate to these areas

Middle Class Investment in Real Estate

2 Increasing wealth with no investment

opportunities

Chinese invest

savings in real estate

Many properties held for

investment value but not

actually occupied

Chinese Real Estate Policy

1 Large profit incentive for local government to

develop land

Governments leases land to developers in unpopulated

areas

The government

makes a profit, while the area

remains unpopulated



1. Chinese Real Estate Policy

• In China, all land belongs to the government by default. Cities derive most of their income from leasing land to developers. Therefore, local governments have a profit incentive to lease large tracts of land even if the market and complementary services aren’t ready.



2. Middle Class Investment in Real Estate

• With increasing wealth among China’s upper and emerging middle class, the average Chinese worker is hungry for opportunities to invest his or her new-found wealth. Lacking a transparent stock market and a freely exchangeable currency, many Chinese have invested their savings in real estate. With no property tax and booming development, real estate is the most attractive investment option for the Chinese.

• However, investor demand for real estate has created a housing bubble which has inflated prices beyond the purchasing power of many Chinese workers. It is common for members of the upper and middle class to own two or more pieces of property, while the lower class (still a vast majority of the population) can only afford to rent.



3. Asynchronism

• The lack of infrastructure in ghost town areas dissuades the Chinese from relocating to these areas, even if housing is more available and affordable.• Infrastructure systems most notably lacking are education,

transportation, and small businesses

• Many people who own multiple properties may stay in their old homes, waiting for the new community to develop.

• In China, parents will do anything in their power to ensure their child receives a good education. Elementary and middle school students may only attend schools in their districts. Therefore, Chinese families will not be willing to relocate unless good schools are already established.



Proposed Solutions

Regulation

3Stronger

communication between local and

national government

Regulate land

development and

ownership of multiple properties

Match housing

supply with consumer demand

Education

2Proximity to their children’s school

is crucial for Chinese families

Invest in educational facilities

in ghost towns

Families would be willing to relocate

Anchor Company to Create Jobs

1Government

incentives to lead companies into

ghost towns

Company creates

jobs in the area

People are incentivized to move to these

areas



1. Anchor Company to Create Jobs

• Introduce government incentives to lead large companies into ghost towns• Many large international companies are interested in

entering China.• Government control on foreign entrants has historically been

very strict, such as requiring a joint venture where the Chinese partner must own at least 50% of the business.

• Chinese government could offer greater freedom and profit opportunities contingent on the company’s location of operations.

• Anchor company will create jobs and attract workers• In smaller Chinese cities it is common for a company’s

manufacturing base to provide jobs for a majority of the population, for example Haier’s industrial park in Hefei.

• People are incentivized to move to these areas• The initial anchor company and its workers will attract other

businesses to the area, in turn increasing the city’s development.



2. Education

• Proximity to their children’s school is crucial for Chinese families• Chinese parents highly value the education of their

children. They would be unwilling to move to a city that did not already have educational services in place.

• Invest in educational facilities in ghost towns• The government could preemptively build schools and hire

teachers to serve the incoming population.

• Families would be willing to relocate• With educational services available, the biggest need of

Chinese families would be met and they would be less hesitant to move.



3. Regulation

• Stronger communication between local and national government• Currently the local government has a profit incentive to

develop land which could be contrary to central government economic goals.

• Regulate land development and ownership of multiple properties• Make it possible for home seekers to find housing, rather

than investors buying the property and inflating prices.• Offer price ceilings for families on the condition of

residency.

• Match housing supply with consumer demand• Invest in infrastructure with a greater focus on

actual demand rather than projected demand.



Implementation Process


Create Jobs

• Identify companies that could be successful anchor for employment given the geographic region

• Incentivize interest in the region by offering favorable regulations such as tax subsidies and greater freedom of operations

• Offer to lessen the historically strict regulations on foreign businesses

Increase

Residency

• Build schools to attract Chinese families to the area • Implement price ceiling on housing contingent on residency• Advertise job opportunities to lower-middle class Chinese

wishing to buy a house

Sustainable Development

• Offer comprehensive plan to develop transportation as the region becomes more populated

• Stricter regulations on owning multiple properties • Attract small business to continue development of the

growing economy


Conclusion


• Team Going Global is committed to resolving the issue of China’s ghost towns and strongly believes that our solution will best facilitate matching the capacity of the ghost towns with the consumption power of the Chinese people.

• Our solution to China’s ghost towns is broad and all-encompassing, but each city’s situation must be tackled on an individual basis. Each of China’s ghost towns have varying histories, resources, and proximity to major metropolitan areas. These factors should be taken into account when determining the best specific solution for each city.

• Any questions regarding our approach can be directed to [email protected]


going global™ consulting jane chen, osvaldo morales, nicole linderman, xiaosu tang solving...

Documents

chinese real estate

ghost towns

ghost cities

chinese workers

middle class investment

ghost town areas

developed areas

emerging middle class