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0 pointsdifferentView3y ago0 comments

>4. Citizens pay up to 40% of the total price on their own, and ask the bank to lend them the rest of the 60% and get it paid back in the NEXT 30 YEARS (often paying as much as twice as the original price).

So they're less leveraged than most American home purchases of 5~20% down payment. 30-year mortgages are also standard in the U.S. You emphasized "NEXT 30 YEARS". Do you think it should be longer or shorter?

>5. The bank gives 60% directly to the real estate corp. So in fact the citizen IS OWING MONEY TO THE BANK, and not to the estate corp.

That's how mortgages work. Why else would a bank be involved if the money is still owed to the seller? Do you think mortgages shouldn't be a thing, that people should save up 100% of the money then pay in full when purchasing a home?

>6. Often, the real estate corp uses this money to pay back previous loans, or use this money to purchase more land from the local govt. So current (future) constructions pretty much depends on whether this Ponzi scheme could continue.

You keep describing how this works in most places as if it's something outrageous.

>8. ...until no typical citizen will be able to afford it.

We're way ahead of China getting to this point here.

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chii3y ago· 1 in thread

> So they're less leveraged than most American home purchases of 5~20% down payment.

the american home is already built (mostly), for such a down-payment. The bank takes the home as collateral.

If it was an off-the-plan purchase (which is what the OP described), you don't really pay the full amount, but just a deposit (like 10-20%). The risk of the development falls solely onto the developers, not the buyer - the deposit is held in escrow, not used for funds to pay for construction or other developer activities.

> You keep describing how this works in most places as if it's something outrageous

that's because it is, when you compare it to western developments. The risk in real estate development in china lies solely on the buyer, and it's absolutely not the case in the west.

manquer3y ago

It is not typical in the western markets, but this kind of practice is fairly common in many markets. For example in India it works the same way, and most times the down payment is only 10%-20% or less. Generally the banks don't release parts of the money to you/developer unless certain milestones are complete. [1]

The practice of advancing money before construction completes, reduces the price for the buyer as already built properties sell for much higher than buying early. So buying early is way to buy a house when the prices are already out of reach for most. It can work if the project and financing is well regulated by the banks.

The property is cheaper[2] because these risks of delays, developer not finishing, not getting approvals so on exist and in theory is factored into the price, along with hedging future inevitable price increases.

[1] Indian real estate is by no means healthy and has its fair share of problems with these practices and delays, but not close to China's scale.

[2] In theory the risk is exactly matched by discounted price, but in practice seller will usually price it a bit higher than the value warranted by the risk factors. Also on average while it may work out, individual buyers may loose life savings as they are betting the farm literally when any specific purchase goes sour.

bobthepanda3y ago

Well, there is evidence in China that the current system is super over-leveraged.

Evergrande and a few other developers have gone bust and left these pre-sold apartments unfinished. So now the people who bought real estate of any kind are getting spooked, and this is basically a bank run, but on real estate.

The Great Recession was bad, but all those houses existed. Which seems a bit better than this present failure scenario.

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As far as affordability, price to income ratio in Shenzhen is 36:1, as opposed to the highest house price to income ratio in the US being LA at 13:1. China is in an unaffordability class of its own.

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