The real estate bust in Spain has produced a variety of apartment communities and similar properties that have turned into ghost towns as real estate demand has evaporated. See the link for photos. In a town called Sesena:
More than 13,000 apartments were supposed to go up to create a mini-city for 30,000 people just 45 minutes outside of Madrid. But only 5,100 were built, many are uninhabited and regular Spaniards who bought them as investments are now competing to offload them for huge losses.
In Sesena and other ghost developments around Spain, some banks are already trying to unload finished apartments at discounts of up to 50 percent of their original prices
Any discussion of misallocation of resources on a massive scale would be incomplete without a remembrance of Muang Thong Thani, the small city of condo towers built near Bangkok in Thailand right before the Asian debt crisis of 1997. The towers were built to house approximately 150,000 people, although it’s unclear if those building have filled up, even fourteen years later. It’s difficult to tell if the web site has been updated since 2007, but it presently states that “The vast majority of these condos, shops, and office buildings have never been occupied since their completion in 1995-97.”
The Commanding Heights documentary (see below) has an interesting section on Muang Thong Thani and on how loose monetary policy in Europe and the US helped to ruin the Thai economy. (Although the video doesn’t quite put it that way.) It offers some insight into the psychology of real estate booms and how middle class investors are encouraged to invest in doomed real estate by easy money policies.
Also, Mark Thornton noticed last week that the world’s tallest building is now a distressed property.
Meanwhile, here in the U.S., foreclosure activity may be ramping up following the conclusion (for the most part) of negotiations with loan servicers and the feds and state attorneys general over a massive legal settlement. The conclusion of negotiations signals that the processing of foreclosures, which has slowed significantly during the past year as banks dealt with the controversy, may now be speeding up. Considering that, according to the Mortgage Bankers Association, more than 14 percent of all first-lien mortgage loans in Florida are now sitting in foreclosure (to name the worst one), it looks like they will have plenty of loans to deal with. The Houston Chronicle reports, however, that the taxpayers may be footing much of the bill for the financial hit the banks will be taking.
Also this week: Housing starts up. Well, they’re up compared to banner years 2009 and 2010.
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Yeah ! Right you are. Spanish real estate bust produces ghost towns. Sometimes large projects become fruitless and these type of projects create pressure on economy as you mentioned about “Muang Thong Thani”.
nice stuff about real estate.
With the possible exception of Italy, I think that each of the PIIGS has ghost developments.
I spent the past 8 years in the Emerald PIG, and my work was dependant on the construction industry. I’m now in the next bubble – food and agriculture.
Approx 25% of the male working population of Ireland was employed in construction at the peak of the boom in 2007. On the basis of registrations of new completions with the construction industry federation’s insurance arm, the boom had actually peaked by May 2007, long before Lehman bro s bankruptcy, and that was evident visiting the big projects around Dublin, where work force reductions on some sites were around 85% in Spring ’08.
However it was following Lehman’s that the cheques began to bounce, the banks reduced overdraft limits and, I received my first redundancy notice of the crash.
A couple of anecdotes to illustrate the extent of the crash.
A friend’s boss (whom she detested) paid €400,000 for a single bedroom flat in a new and prestigious development in Dundrum, the most fashionable suburb of Dublin. At that time the average first time buyer was paying €250,000 – around 5 times average earnings!
Friend’s boss was one of the few, or possibly the only one, to buy a flat in that block. One of the local councils then took over the remaining flats, to house single mums: She’d paid €400K for a council flat!
During 2007, there were several economists who wrote about the imminence of a crash in Ireland, most famously Prof Morgan Kelly of UCD http://en.wikipedia.org/wiki/Morgan_Kelly_(Irish_economist) who predicted a price drop of around 60%.
(I don’t know which school of thought Kelly follows – the only Misesian whom I know of at UCD is the excellent Philosopher, Prof Gerard Casey http://mises.org/daily/author/1197 )
In response to Kelly’s prediction the then Irish Taoiseach (first minister), Bertie Ahern, said:
“Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide because frankly the only thing that motivates me is being able to actively change something.”
During my visit to Ireland last month, the property price fall was said to be more like 75%, and the prospect of a new property tax can only contribute to that fall as it’s impact is capitalized and deducted from selling prices.
I don’t know what has happened to the “investment properties” Bulgaria, however, closer to their homes, Ireland is reckoned to have around 2,800 ghost estates:
http://www.irishtimes.com/newspaper/ireland/2011/1014/1224305756663.html
http://www.irishtimes.com/newspaper/ireland/2011/1025/1224306446050.html
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