Who's afraid of China's ghost towns?

Unsold properties have spurred fears that China's real-estate market may be a ready-to-burst bubble, but its "ghost towns" may not be all that empty.

Concerns over unsold properties have spurred fears over whether China's real estate market is a ready-to-burst bubble, but the mainland's "ghost towns" may not be all that empty.

"They're not big, huge empty cities," Tom Rafferty, China analyst at The Economist Intelligence Unit, said, adding some large-scale housing projects in cities' residential districts just haven't been sold or occupied yet. "We've seen a huge growth in the urban population. They can be filled," he said.

"One of the ones I always find quite funny is Zhengzhou," Rafferty said. "It's got a population of 9 million people, but it always gets called a ghost city," he said, adding it has a low urbanization rate which will steadily increase over the coming years and a large number of industrial jobs being created.

"You can be positive about where it's going," he said.

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Concerns that China's property market is a popping bubble have moved to the front burner recently, with home sales in the four months ended April down 9.9 percent, after slumping 7.7 percent in the first quarter. Property is estimated to account for around 20 percent of the mainland's gross domestic product (GDP).

But despite slowing sales, others also aren't buying into the China ghost story.

"There are pockets of sometimes serious excess, but doomsday scenarios are ghoulish exaggerations," CLSA said in a report earlier this month.

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It estimates China's vacancy rate at around 15 percent of property completed in the past five years, based on an on-the-ground study of 810,000 units in 12 cities. Among housing over five years old, units smaller than 90 square meters (968 square feet) and tier-one housing, the occupancy rate exceeds 88 percent, CLSA said.

Second-tier city Zhengzhou has a more than 20 percent vacancy rate, CLSA noted, but it believes second-tier cities' average vacancy rate of 13 percent is a "timing mismatch."

While China's vacancy rates may appear high compared with international standards, such as the average 10 percent rate in the U.S., oversupply is uneven, CLSA said. Tier-one cities' vacancy rate is just 10 percent, while the rate is around 16 percent or higher in tier-three cities, it noted.

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In addition, while luxury property vacancy is at 19 percent, CLSA isn't concerned as it's generally "desirable" stock and is often used as a store of wealth.

Some expect sales to bounce back, possibly clearing the vacancies.

"More than two-thirds of the demand in the market is real end-users. And what we see on the ground is those buyers want to buy homes," Michael Klibaner, head of research for China at property investment manager JLL (JLL), told CNBC last week.

"When developers are discounting projects, the buyers are coming back into the showroom," he said. "The first-time home buyers are really the majority of demand and if you give them the ability to purchase by improving mortgage availability, they will and the market will rebound."

Tight mortgages have contributed to the property market slowdown this year as lenders have raised home loan rates for first-time buyers or delayed granting mortgages due to tighter liquidity.

Last week, China's central bank called on major lenders to give priority to first-time home buyers when allocating credit, possibly signaling a shift in the government's long-running campaign to cool the property market.

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To be sure, some of China's property inventory may never be occupied.

"I'm not so sure if we have a lot of these ghost cities, but there's clearly a lot of empty real estate" in smaller cities, said Maarten-Jan Bakkum, senior emerging market strategist at ING Investment Management.

Remote, cheap properties have a 17 percent vacancy rate, CLSA estimated, adding the underlying problem is likely overinvestment.

The longer these homes stay unoccupied, the less likely they will ever be occupied, Bakkum said.

"If it stays empty too long, decay is very fast and the quality is not always good," he said. "You have the risk of these areas of cities or maybe even complete cities that will stay empty forever and will slowly fall apart."

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Rafferty, the China analyst at The Economist Intelligence Unit, said he is specifically concerned about cities in China's northeast, noting the region was industrialized in the 1950-60s and now has an aging population, with the lack of job opportunities discouraging migration there.

Both CLSA and Rafferty cited northeastern city Ordos as a concern.

CLSA noted the tier-three city has both "oversupply and an irreversible turn in fortune." The city, which has a 37 percent apartment vacancy rate, faces both population and fund outflow as its key industries of coal mining and natural gas fade in importance, it said.

"There is no economic growth driver on the horizon nor major infrastructure completion to boost demand," CLSA said.

—By CNBC.Com's Leslie Shaffer and Katie Holliday; Follow them on Twitter @LeslieShaffer1 and @HollidayKatie