There has been some debate about how significant of a real estate bubble has been forming in China. But a new report from Lillian Liu at Finance Asia provides good reason to argue it's a big one. The vacancies are rather astronomical. Liu writes:

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country's 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.

And so people prefer buying to renting, and as a result, the rental yield is relatively low.

As Vincent Fernando points out at Business Insider, that's enough living space to house more than half of the U.S. population. Actually, it would hold closer to two-thirds. He says that Chinese find long-term investing in real estate their best option for their wealth even if it remains vacant. They had better have a very long-term horizon for that return, however, as it's hard to see how these apartments can appreciate much if no one is interested in renting them.

How does this compare to the U.S.'s recent bubble? If you take the ratio of the 64 million vacancies to the Chinese population, then you get around 4.92%. We can compare that to vacancy data from the U.S. Census Bureau (.pdf) from the first quarter of 2007, it shows 13.4 million year-round vacancies for both rentals and purchases. If take a similar ratio with the U.S. population at that time, you get around 4.45% (the number was 3.67% in the fourth quarter of 2007). So vacancies relative to population were actually a bit lower as the bubble began to pop in the U.S. than they are in China currently, though not dramatically.

We all know how things turned out in the U.S. real estate market. Will China's housing market face a similar decline? If all these investments have a great deal of equity, then owners might not be forced to sell and prices could stick. But it's hard to see how these vacant properties could maintain an inflated value indefinitely with no stream of income from renters.

(h/t: John Galvin)