A Mortgage Payment Boycott Fuels the Implosion of China’s Property Bubble

    0
    292

    by Mish Shedlock, Mish Talk:

    A senior Chinese banker chimes in on peculiar mortgages in China and a growing revolt on payments.

    In an article translated by Pekingnology, a Senior Chinese Banker chimes in on China’s Mortgage Boycotts.

    The mortgage boycott, revolt, strike, or crisis is not a small deal. Wang Yongli, former deputy governor of the Bank of China (one of China’s four largest state-owned lenders), recently wrote a piece on the root cause and offered his policy advice.

    TRUTH LIVES on at https://sgtreport.tv/

    A very brief summary of the translation below: Mortgages in China are different in that they are extended by banks to homebuyers before the apartments are built and that they are backed not just by the apartments, but also by the homebuyers’ personal credit. Not only significantly disadvantaging homebuyers who pay the full amount before even seeing their apartments and put their other assets on the line to get the loan, the arrangement – dubbed mortgages with Chinese characteristics – also incentivizes banks to overlook risks in the buildings they are financing since they can go after the homebuyers’ other assets. Wang Yongli says that must stop.

    Under this arrangement, buyers actually provide a large amount of interest-free funds for the developers (establishing a form of entrusted agent construction), which greatly reduced the capital cost and financial risk of the developers, and provided a source of income for banks (the interest of the mortgages) and government (real-estate related revenue). The arrangement makes developers a darling in the eyes of banks and the government and puts all the risks on buyers.

    As a result, developers will take all possible measures to expand the pre-sale of apartments. They then use the money to expand their business, such as purchasing more land, slowing down the construction of the apartments that have been paid for to take more advantage of the interest-free funds, or even cutting corners on the building quality and their supporting facilities. Once the developers cannot deliver the apartments on time or with good quality according to the contract, the scattered and (structurally) weak buyers can hardly protect their own rights and interests.

    The current wave of “mortgage suspension” by buyers/borrowers to defend their rights is a result. This risk has existed for a long time and has accumulated in large quantities, and it is only a matter of time before it explodes. Its outbreak is only a matter of time. Therefore, we must find out the root cause of the problem, solve it as soon as possible, and eliminate the hidden danger.

    Read More @ MishTalk.com