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Jingle mail, Chinese style
Topic Started: 8 Aug 2014, 05:39 PM (343 Views)
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http://investinginchinesestocks.blogspot.com.au/

The 21st Century Business Herald is reporting that home buyers are turning banks into landlords due to an inability to repay mortgages, along with a lack of confidence in the market that’s causing investors to cut their losses. In several cities such as Hangzhou, Wuxi, Ningde and Xinyi, banks have been suing homeowners for failure to pay the mortgage. There isn’t enough data to call this a widespread phenomena, but regulators are sounding the alarm.

In Nanjing, one state owned bank branch manager said he hadn’t seen anything similar situation in his city, but the past due rate and past due amount is rising. He said the bank will have a lot of pressure in the second half of the year. He went on to say that home owners are complaining after a small drop in prices, but the big drop hasn’t come yet. Small companies that buy large and luxury properties are expected to be the greatest source of bad debt. Later in the article, a property agent explains that property investors want to get the pain over with and cut their losses.

A big reason for the increase in jingle mail is the price of the home falling below the mortgage. The house becomes negative equity and the desire to repay the mortgage declines. Banks also failed to enforce strict credit standards, often relying on income alone which could be easily faked. (So China has liar loans too…)

The article closes with a lawyer explaining that if it goes to court, the home will be auctioned. If the sale price exceeds the outstanding principal and interest, excess proceeds will go to the homeowner. If the auction price is exceeded by the debt, the court will go after the homeowner’s other assets.

Meanwhile, there is debate in the press about how to pay for stimulus. China’s mini-stimulus has two parts. One is the acceleration of investment projects, pulling economic activity into the current quarters. The other part is increased investment,which is under question. In July, I noted that the latest unofficial count is at ¥6 trillion in stimulus, but with tighter controls on shadow banking, concern about local government debt levels and declining land sales, local governments find their finances constrained. If there’s no way to pay for projects, there will be no stimulus.
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