Home News A Mortgage Payment Boycott Fuels the Implosion of China’s Property Bubble – Mish Talk

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

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Senior Chinese bankers agree in an article translated by Pekingnology. Chinese mortgage boycott.

A mortgage boycott, rebellion, strike, or crisis is no small matter. Wang Yongli, former vice governor of the Bank of China (he is one of China’s four largest state-owned financial institutions), recently wrote an article on the root causes and offered policy advice.

A very brief summary of the translation below: Chinese mortgages are offered by banks to homebuyers before the apartment is built, and are backed not only by the apartment but also by the homebuyer’s personal credit. Not only does this arrangement (called a mortgage with Chinese characteristics ) motivates us to overlook the risk of buildings financed by banks. They can target the homebuyer’s other assets. Wang Yongli says it has to stop.

Under this arrangement, the buyer would actually provide the developer with significant interest-free funding (establishing a form of contract construction), significantly reducing the developer’s capital costs and financial risks, and providing a source of income for the bank. (mortgage interest) and the government (real estate related income). This arrangement puts the developer in the eye of banks and governments and puts all the risk on the buyer.

As a result, the developer will go to great lengths to expand the pre-sale of apartments. They use the money to expand their business. For example, buying more land, delaying the construction of a paid-up apartment to take advantage of interest-free funds, or even cutting corners on building quality and its support. Facility. Dispersed and (structurally) weak buyers can do little to protect their rights and interests when developers can no longer deliver apartments on time or in good quality as contracted.

The current wave of “mortgage stops” for buyers/borrowers to protect their rights is the result. This risk has been around for a long time, has accumulated a lot, and is only a matter of time before it explodes. Its occurrence is a matter of time. Therefore, it is necessary to find the root cause of the problem, solve it as soon as possible, and eliminate hidden dangers.

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