REUTERS: China's mortgage quality worse than US: Expert

[touchring]

http://timesofindia.indiatimes.com/Chinas_mortgage_worse_than_US/articleshow/2275697.cms

China's mortgage quality worse than US: Expert

12 Aug 2007, 1956 hrs IST,REUTERS

HONG KONG: The quality of Chinese home loans is worse than in the United States, where a subprime mortgage crisis is causing turmoil in global financial markets, according to a prominent academic quoted in a Hong Kong newspaper on Sunday.

Yi Xianrong, a banking and finance expert at the Chinese Academy of Social Sciences, said Chinese banks had been lax as they built up 3 trillion yuan ($396.2 billion) of mortgage lending.

Defaults in the U.S. subprime mortgage market now total about $200 billion, on some $1 trillion of loans, according to Credit Suisse.

"The quality of housing loans are much worse than the subprime loans in the United States," Yi was quoted as saying by the South China Morning Post.

"At least there has been a credit check system (in the United States) but in China anyone can borrow money to buy a house."

China's property market has been booming thanks to a hunger among a fast-growing middle class for new apartments, but the government has been wary of rampant speculation in major cities, particularly Shanghai.

Fearing a dangerous bubble could be forming, authorities have tried several measures to try to cool the market, including interest rate rises, rules to curb foreign investment in property, and steps to encourage construction of cheaper homes.

Global financial markets are jittery, and credit has dried up, because it is difficult to say to what extent a U.S. housing downturn will hurt funds holding securitised mortgages held in collateralised debt obligations (CDOs).

However, securitising mortgages is new to China and not as widespread, although banks and consumer sentiment would still be hurt by a housing downturn and mortgage defaults.

[Rubber Duck]

Bloody Hell! On a per capita basis that is more than $100 each. More than a years wages by Rick's reckoning.

Definition of Expert:

Ex ... Has Been
Spert ... Drip under Pressure

[touchring]

True, there's a lot of corruption in the way mortgages are issued, but china is still a relatively undeveloped economy on the whole and people can always escape to the countryside and live at unbelieveably low cost should they lose their jobs in the city.

And the entire extended family can always (and frequently do) squeeze into one apartment if need to - grandpa, grandma, aunt, mom, dad, kids, all squeezed into an apartment.

[mgrohan]

yes there is a huge property bubble forming in China. Developers driving prices up and the local/district governments not really doing much ahead of Beijing 2008 (trying to impress higher powers).

Some places have seen rises of 20-30% in the last month. Some prices nearly x2+ the price they were 2 years ago.

Although with rent costs only up a tiny bit 20% in 2 years, occupation rates of some apartments at around 30% with the rest just property investors holding on to the property, and interest rates rising. There will undoubtedly be a downturn in the Chinese property market. But maybe not till after Beijing 2008 next year.

Prices now in the major cities on the coast and in Guangdong are getting crazy. Shenzhen house prices are now comparable to Hong Kong. Although inland, even in the big cities (kunming - xi'an - chengdu) it is possible to find some good priced $50,000USD for a good sized aprtment..

[touchring]

Although with rent costs only up a tiny bit 20% in 2 years, occupation rates of some apartments at around 30% with the rest just property investors holding on to the property, and interest rates rising. There will undoubtedly be a downturn in the Chinese property market. But maybe not till after Beijing 2008 next year.


If everyone expects it to last till Beijing 2008, then it will probably end way before that. ;)

But if it really happens, and you got a good sum of cash on hand, it will be one of the biggest opportunity in our lifetime. :)

[mgrohan]

Will probably slowdown before then (already showing signs and definitely by the end of the year). But after 2008 expect it to crash.
Until then local government are not doing much as they are filling their tax coffers to impress the upper government, and show how much taxes they can raise.

You are right about a great opportunity if it crashes. Although non Chinese nationals are only able to purchase the single property by law.

[touchring]

Will probably slowdown before then (already showing signs and definitely by the end of the year). But after 2008 expect it to crash.
Until then local government are not doing much as they are filling their tax coffers to impress the upper government, and show how much taxes they can raise.

You are right about a great opportunity if it crashes. Although non Chinese nationals are only able to purchase the single property by law.


Yea, the restrictions in China are incredible, difficult to setup company, different to obtain license, difficult to bring out money, and yet the economy can still overheat. Can foriegn capital china incorporated companies purchase property?

[chineseidn]

We have just been through the whole process of buying property in Shanghai and since we started looking, more than half a year ago, prices have gone up, even though there was a lull for sometime.

Especially the last month things heated up, like Mgrohan mentioned. Apartments we were interested in suddenly were 10-20% more expensive.

The story here in Shanghai is that it will be at least booming till 2010 when there will be the World Expo. There's still a lot of speculation going on it seems. A lot of properties I see, especially in Pudong are empty.

There's no real correlation between housing prices and the rent, as the last one is mostly very low, lower than the monthly mortgage payments.

Regulations are a little stricter for foreigners here, but still doable as the local districts have their own policies how to deal with this. Officially you have to show that you have been working for a year but in some districts just showing you have a one year contract is good enough. Local districts do this because they like the tax income and other fees that house buying generates.

From what I understand regulations for foreign companies are a lot stricter but this being China, there probably always is a way if you really want.

I used to think the market was overheated, that was what I said a couple of years ago, but honestly, I wouldn't dare to make any predictions at this stage.

Crashing housing prices will make a lot of people unhappy and that's the last thing the government wants as it can create all kinds of social unrest. And in that situation the unhappy people are not the poor farmers without any voice but the city people which makes it trickier to deal with.

[touchring]

We have just been through the whole process of buying property in Shanghai and since we started looking, more than half a year ago, prices have gone up, even though there was a lull for sometime.

Nice. :)

I'm thinking commercial, shopfront where there is real yield. I was looking at shopfronts in small cities about 5 years ago, but then i had no capital and couldn't raise capital, so i missed the chance.

Developing capitalist economies always go into at least 2 rounds of severe recession - growing pains if you call it so that unsound parts of the economy can be ridden.

Delaying such corrections will not skip the process - it will only mean that the ultimate fall will be harder. Japan is a good example. However, unlike Japan, which was fully developed by 1980s, China is still 3rd world as a whole. My guess is that China will follow the example of Thailand, which btw, the economy is largely controlled by ethnic chinese businessmen, a severe recession followed by recovery within 5-8 years.