Chinese ghost towns are widely considered to be symptomatic of its property bubble.

But some, like Yale professor and former chairman of Morgan Stanley Asia, Stephen Roach, have argued that these cities will become "thriving metropolitan areas" as China continues to urbanize.

In a new report titled Demystifying China's "Ghost Towns," Bank of America's Ting Lu explains why all the chatter on ghost cities is overblown and says while there are smaller bubbles, it is inaccurate to characterize China's entire property sector as a giant bubble.

Lu writes that there are a few ghost towns because of "failures in city planning and irrational over-building," but they are not as prevalent as media reports would have us believe. If there were, he said, the media would be able to find a lot more ghost towns than they have.

"Favorite “ghost towns” covered in media have been invariably from the following short list: Ordos in Inner Mongolia province, the New South China Mall in Guangdong province, Chenggong in Yunnan province, Yujiapu in Tianjin municipality and Zhengdong in Henan province. The fact that global media failed to greatly expand the list in the past few years suggests that the number of ghost towns in China should be quite limited."

Lu also says there is a huge difference between China and developed markets that saw their housing bubbles burst. In China, the economy is still growing fast, as is the urban population.

Media reports also frequently say China has 65 million vacant homes. Lu calls into question the veracity of this data. The number, he said, came from China's State Grid data that said 65 million electricity meters in China were not operating, but it isn't clear whether this is because of vacant homes or because many of these just don't run.

In fact, he said it's possible to see ghost villages since the country has 150 million migrant workers, but that 65 million vacant urban homes is a stretch.

Based on his calculations of urban housing stock (129 million urban homes have been built since 1995), and factoring in things like the fact that some apartments lack toilets, kitchens and so on when they are first built, and people take some time to move in, there should be 20 million vacant homes in urban China.

CHina urbanization chart

Bank of America

Considering that policymakers are focusing on urbanization as a key growth driver, housing demand in Chinese cities is expected to surge. China's urbanization rate is up to 53 percent, from 39 percent in the past decade, and is expected to continue to rise to 65 percent in the next ten years.

And as the government relaxes its hukou (residency permit) policy, urban residents are also expected to move from dorms to homes.

He also took aim at the "60 Minutes" report that aired a few weeks ago. Lu writes that the reporter got some of the facts wrong.

  1. The report said most people in China live on less than $2 a day. However only 15 percent lived on less that $2 a day in 2012, according to National Bureau of Statistics.
  2. The report underestimated household expenditures, which is closer to $7.3 in urban areas and $3.9 in rural areas. And actual consumption in rural areas is higher because they are self-sufficient in terms of food and this only includes their cash expenses.

Lu doesn't expect that there is a huge property bubble that is set to burst. "Home prices vs. income growth, affordability, and housing value [lead me] to conclude that China’s property sector is not as worrying as those 'ghost town' reports have depicted."