Home foreclosures rise in China as incomes drop
September 22, 2020 Category Real estate, Weekly
As many as 1.25 million homes were foreclosed in China as of September 16, according to the Taobao e-commerce platform. That is more than double the 500,000 at the end of 2019 and compared with 9,000 foreclosures in 2017.
Deteriorating job prospects and shrinking incomes amid the worst economic contraction in decades combined to weigh down on borrowers’ repayment ability, putting an end to the country’s debt-fueled real estate rally. Nowhere is the problem more serious than in Guangzhou, the provincial capital of Guangdong. As many as 33,000 foreclosures were reported in a city whose economy shrank 2.7% last year, more than the national average of 1.6%. Lisa Fan, a Guangzhou-based lawyer who specializes in bank notices for debt-collection, has seen plenty of these cases. A woman recently approached Fan for help when her beauty salon was forced to be sold after half a year of coronavirus lockdowns. “She owed CNY4 million and needed to pay CNY20,000 each month,” Fan said. “However, she had no income in the first half due to the social-distancing measures to contain the coronavirus outbreak.”
Property foreclosures create a downward spiral effect, as homes used as collateral for loans tend to be avoided by buyers in the second-hand market for fear of containing hidden liabilities, until they can be proven to be fully discharged. “Buyers worry that their property may be involved in complicated legal procedures and will avoid them even if prices have been slashed by 10% to 20%,’” said Midland Realty’s Research Director Fion He. A reason for the increasing number of defaults is the increasing propensity for property buyers to resort to using loans and leverage to finance their purchases, as ever escalating real estate prices put homes beyond the reach of average households. In Shenzhen, the median home price has risen 14.6% so far this year, following last year’s 15% increase, according to data by Lianjia. When buyers’ incomes or businesses suffer, their ability to repay comes under pressure. More sellers are approaching the property agent for urgent sales of their homes because their salaries have been cut, or because they have lost their jobs or businesses, Midland’s He said. Many of them are hoping to cash in on their assets before they fall into default on their mortgage payments, she said.
“During the good times, their homes can appreciate in just a couple months, and they then can borrow more money from banks – more than enough to pay back what they borrowed for down payments and they also can get more for other investments,” He said. “But when black swan events like the Covid-19 pandemic hit, they just cannot survive for even a couple months. It is a fact that the macroeconomic environment is not good and every individual has been hit.”
Banks usually allow a delay of payments for three months and taking the pandemic outbreak into consideration, banks usually can extend the mercy period to six months, said Zach Zhao, who works in a state-owned bank in Tianjin. “There is a dramatic surge of payment delays, and even defaults, of personal loan payments, including credit cards and consumption loans, as people are losing their jobs. But defaults in mortgages are usually the last step as no one wants to lose their homes,” Zhao added, as reported by the South China Morning Post.
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