In theory, being a socialist utopia, everyone should just get their house because of market failure which is outside of their control. (which is kind of what I think should have happened during the GFC, bank failure in your favour so to speak)
But lets see how the utopia holds up to reality. Yay, we're living in interesting times.
For many of those owners the house is not intended to be lived in but rather an investment vehicle. Somewhere i read that a majority of home owning families (sometimes extended families) in China have more than one home -- don't know if that's true.
In the city I'm aspiring to buy a house (a.k.a. somewhere near Tokyo), you only need to put the down payment if the construction hasn't finished yet. There will be no mortgage until after the house is ready.
I kind of think this may be a slightly better model in terms of homebuyer protection... (May not sound good for the developer though)
When a flat I‘ve bought in Germany was constructed, the payment to the developer happened „Zug-um-Zug“, that is, they received a total of like 7 payments as the development reached certain milestones.
Had to take the whole mortgage up front in one go, though.
In the USA, you obtain short term high interest financing until the home is completed, then you spin that into a mortgage. Most people buy almost completed new homes from developers, however, which means the developer takes that initial loan/risk.
Could someone key me in to this? I thought generally the Chinese government never shied away from stepping in and manipulating things. Recent trends (for example, the government blaming young people themselves for their low employment numbers) feels like they imported the bootstraps mindset from American politicians, which seems out of step with what was seen as them being rather direct in control of their economy. Recent actions from the government seem to be opposite this.
A lot of what counts as government spending is actually the central government telling provinces and cities to spend. Except those also have heavy debt burdens after years of stimulus.
Very little central government money is trickling down. And the problem is not just that the developers are out of money, but their contractors have not been paid for months, those contractors have not paid their suppliers or workers for months, and down the line.
Chinese control of their economy isn't about altruistically helping everyone. A cynical perspective is that this is just more class conflict born from an Animal Farm style revolution.
They seem to be aware of the dangers of perverse market incentives and they also know the real estate market is completely shot. Propping up Evergrande doesn't fix the underlying issues while letting it fail would not just wipe out the wealthy, it would have severe negative impact on the middle class and everybody working in construction.
People here are all "let it fail" and don't seem to care about how many millions of people would be drastically affected. These are people's lives we're talking about. Stop waving it away as if it doesn't matter. The callousness here is appalling.
Also, don't look at what some politician says, regardless of country. What's important is what they do about perceived issues.
No, investors cannot just write it off as a total loss.
Hard as it may be, it will be better to just burn an entire generation rather than draw the final curtain on the People’s Republic of China and possibly the world economy as we know it.
Meh. I understand property is pretty much the only viable investment a person can make in China, but these investors should have known what they were buying. Makes me think of idiots that lost big in crypto. The bubbles value has already been spent, so someone is going to have to bag hold. Either the government should buy and forgive all the debt, or the investors should get fucked for overplaying their cards. Maybe they can fake their death or escape to another country.
The issue is that the bubble should’ve popped probably even five or ten years ago, but then the government allowed credit extension and the bubble kept on.
The recent hard lines, with no sign of easing after multiple defaults, is a new thing.
TBF arguably RE bubble was being addressed 5-10 years ago, there was domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Then 2017 crack down on shadow banking which drove developers + local gov to increase presales, turning it into a financial instrument to keep the taps going. Then hard 3RL in 2020. Could have probably smashed skulls sooner and harder though.
With how big the bubble has gotten a painful explosion was going to be inevitable no matter what.
Markets considered expensive in the West have significantly lower house price to income ratios. In San Francisco it is 12.3x, in London it is 13.9x, in Paris it is 18.8x, and in Shenzhen it is a whopping 40x.
If they stop paying the mortgage, the bank can foreclose on their non-built house. Frankly speaking, the government is probably going to bail all of these people out; if they don’t the whole real estate sector could fall over. The practice of selling houses yet built is not limited to Evergrande.
In most countries, you aren’t able to even get a mortgage on a house the bank can’t put a lien on. The banks are actually complicit here, but they are mostly state owned, so the government will manage fall out here in the direction away from social unrest.
