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Decay of Detroit's property market a lesson for China's urbanization [Copy link] 中文

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Post time 2013-4-21 09:38:20 |Display all floors
Author:Ding Yi   Source:Sino-US.com   

Forbes included Detroit into its list of the most dangerous cities in the US. Photo: Lucas Oleniuk/ZUMA Press/Newscom

Thanks to the eye-popping low property prices, Detroit, which was once a famed auto manufacturing hub in the US, is becoming exceedingly alluring to the Chinese people grumbling about China's rocketing real estate prices.
Lured by a Chinese real estate agency, which on March 20 advertised an investors' tour of Detroit where a home is as cheap as a pair of shoes in some cases, thousands of people have shown interest in snapping up the city's properties at rock-bottom prices.
The advertisement, which triggered the buying spree, came after a March 1 declaration of a state of financial emergency in Detroit by Michigan Governor Rick Snyder who subsequently named an emergency manager to oversee the city's finances.
With its population shrinking by more than 25 percent in the last decade, Detroit is turning into a ghost town due to oversupply of housing, plummeting industrial output and poor city management.
In a recent interview with China Central Television (CCTV), the largest state-run broadcaster in the country, Jasmine McMorris, the head of a local real estate investment company, said that while some people can spend $1,100 on a pair of shoes, she can instead buy two properties in Detroit for that price with $100 still left over.
The housing agent has bought 363 properties in Detroit in recent years with prices ranging from $500 to $12,000. This year, she just paid $2,300 for a 230-squrare-meter house, which was retailed for some $450,000 five years ago.

A Detroit house, once a home for the rich, teeters on the brink of collapse. Photo: Dailymail.co.uk

A treasure or a trap?
The CCTV report quickly went viral on Sina Weibo, China's Twitter-like micro-blogging service, with some Weibo users expressing the yearning to pick the low-hanging fruit in Detroit.
Others, however, did not buy the story.
A Sina Weibo user, @吴筱毅wuxiaoyi, commented, "There are many hidden costs behind Detroit's low property prices, such as maintenance fees and property taxes. What's more, safety is a consideration when buying a house in Detroit."
Nearly half of the owners of Detroit's 305,000 properties failed to pay their tax bills and some $246.5 million in taxes and fees went unpaid last year, furthering a vicious cycle of declining revenues for a city in a financial crisis, according to an analysis report by The Detroit News based on the review of the local government's tax documents and records.

Leola Wesley, 85, was the only resident of her block to pay property taxes last year. Photo: The Detroit News

According to Detroit law, a property will be confiscated by the government if the property taxes remain unpaid for a maximum time limit.
The delinquency, thus, will leave the Chinese property investors in a quandary where they will have to handle the unpaid taxes of the previous owner before they can get the property ownership certificate of the house confiscated by the government.
An investor has to pay $6,000 in property taxes per year for a house gained through paying $500 simply due to a government appraisal report that values it at $300,000, a Georgetown University researcher said. It means that it is easy to buy Detroit's properties, but hard to maintain them there.
Safety is another issue. In 2011, Forbes included Detroit into its list of the most dangerous cities in the US after referring to the FBI's uniform crime report for 2010, in which the city's high crime rate was illustrated by the reports of 1,111 violent crimes per 100,000 residents.
Nonetheless, unlike the reckless Chinese property speculators swarming into Detroit, some buyers still hold a vision that the economy will rebound and the public security will improve in the automobile city.

The ruins of the Packard Plant stand in Detroit. The plant first opened in 1903 and was abandoned in 1958. Photo: Mail on Sunday

A lesson for China's urbanization
"Urbanization" accomplished through over-construction may lead to the development of a city with high home vacancy rate, like Detroit, which had adopted a housing construction-oriented growth strategy but was later hit hard by the global financial crisis in 2008.
The 2008 financial storm brought down Detroit's dominant auto industry, exacerbated the unemployment rate and resulted in the subsequent population movement to neighboring areas, leaving the city as a ghost town where the real estate prices plummeted to incredibly low levels.
As developers are pushing forward their massive and reckless real estate development projects in the Chinese city, the downfall of Detroit's property market can provide China a lesson on how to promote its urbanization.
"Detroit at one time tried to create a turnaround by building residential and office buildings and hi-tech transport system, only to find that it was going from bad to worse," wrote Edward L. Glaeser, an economics professor at Harvard University, in his book "Triumph of the City".
Glaeser also blamed the decay of Detroit on the collapse of the auto industry, the only pillar industry in the city, arguing that the unitary industrial structure violates the nature of urban diversified development.
Therefore, successful urbanization should not be reflected in the number of skyscrapers in a city, but in how a city uses industrial diversity and job opportunities to attract people to move in.





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