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.
Michael Pettis Chimes Inn
- Pekingnology has translated an interesting article by the former Vice President of the Bank of China (one of China’s “Big 4” banks) on the different evolutions of China’s mortgages.
- What struck me about this article is how procyclical the process is by which homebuyers can obtain a mortgage for an apartment that still takes years to complete.
- In an era of relentlessly rising real estate prices and growing liquidity, a mortgage system that accommodates large pre-sales is good for the real estate sector.
- Property developers use this funding not for its intended purpose, but to accelerate property development in general and drive property prices even higher.
- The problem is that when we can no longer expect relentless property price increases and increased liquidity, the sudden and severe depletion of this funding source will hurt property development in general, further depressing property prices. .
Large Relief Proposal
Wang Yongli sought relief for the buyer, saying local banks should “suspend the buyer’s obligations on the mortgage and sign corresponding tripartite agreements with developers and buyers.”
I am always against all remedies and this is no exception. But I do expect some kind of remedy is on the way.
Q: Why?
A: Without relief, mortgage holders will default, which will spill over to banks.
However, with real estate prices continuing to fall, this could take years or more to clear up.
The bursting of the property bubble will affect consumer demand and put further pressure on exports as a means of growth.
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Is Low Inflation in Japan and China a Strength or a Weakness?
The Financial Times article claims:China and Japan have managed inflation well despite being exposed to huge increases in energy and food costs..”
For at least a decade, China has managed nothing very well, especially the real estate bubble and COVID-19. And now it’s time to repay. China’s real estate bubble has burst and fictitious wealth has evaporated.
This is very bad for domestic consumption and makes China increasingly dependent on exports when consumer power is really needed.
See below for more information on export mercantilism in China, Japan and Germany. Is Low Inflation in Japan and China a Strength or a Weakness?
Origin of this post MishTalk.Com.
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