A park in Kangbashi New Area, Ordos. (Photo/Xinhua)
Kangbashi New Area in the city of Ordos in Inner Mongolia is a suburban area full of unfinished buildings, the construction of which ground to a halt in October last year, reports the China Economic Weekly in Beijing.
The weekly quoted a local source as saying there are buildings with total floor area of 22.25 million square meters under construction in the city as of November, including 10.05 million square meters of recently begun projects.
At present, construction on 80% of them had stopped due to a lack of funds. Deserted construction sites are everywhere in the city,and the few people remaining on these sites are likely to be creditors looking for the owners of the construction companies to demand repayment of their loans, said the source.
The sales manager of a half-completed building told the weekly that the price of the building was 10,000 yuan (US$1,580) per square meter last year, while the current price is unknown because nobody wants to buy it.
Instead of attracting buyers, falling prices would provoke the anger of those who had already bought the property at higher prices, said the source. Most of the buyers had bought houses in the building as an investment only to find their money locked in the property, said the source.
Qiao Shigang from Shanxi province is a typical investor, who lent 7 million yuan (US$1.1 million), drawing upon his own savings and loans, to a local real estate developer called Tutong Group. However, Tutong has repaid him only 3,000 yuan (US$473) thus far. Since last year he has repeatedly asked Tutong to repay his loans.
The Inner Mongolian city experienced a boom in 2001 driven by the mining of rich coal deposits in its adjoining areas. Many coal mine owners expanded their mining operations with money borrowed at high interest rates from private lenders.
The thriving mining industry led to the expansion of the city to the point where it was the wealthiest in the country in terms of per capita income. Private land began to be expropriated for public projects in return for generous compensation since 2003 and many local farmers became millionaires after selling their farmland to the city government.
These farmers lent their newfound wealth to real estate developers at interest rates of between 3%-5% per month, leading wealthy lifestyles without working, noted China Economic Weekly.
In 2010, local land developers had invested 18.98 billion yuan (US$3 billion) in construction projects, with 56.4% of this amount borrowed from private lenders. At that time, almost all the 500-odd real estate companies in the city had departments to solicit investment from private lenders, according to the weekly.
The bubble collapsed in 2009 and the construction of many half-completed buildings stopped for lack of financial support.
In its heyday, Ordos attracted more than 300,000 outsiders. Now only half of them remain, waiting for a chance to recover their money.
The weekly quoted an analyst as saying that Ordos' problem is that it had only one dollar but tried to invest ten dollars in business by borrowing nine.