Real estate speculators in Wenzhou of China are facing negative equity13 August, 2012, 14:42. Posted by Zarathustra
We have all heard enough about the argument that debt level in China is low, leverage is low, and people bought properties with their own money, not borrowed one. But as we now understand, China has more debt than many used to believe, you just need to know where to look.
It is not untrue that mortgages were not easy to come by (especially for second, third, and nth homes) because of the real estate market curbs implemented in the past year or two. But real estate speculators have their ways to borrow. They are highly leveraged, especially for those from Wenzhou.
It is not the first time for problems in Wenzhou get mentioned here. The shadow banking mess started here, and a lot of businesses are suffering here.
People from Wenzhou are also known for their interest in real estate speculations, and they appeared everywhere in China and indeed all over the world (almost). And did you think that they bought all the properties with their own money? Wrong.
According to one real estate speculator in Wenzhou, speculators obtained about 70% of their funding through banks and/or shadow banks, Yicai reports. According to the report, prices of newly completed properties in Wenzhou have fallen by about 30-40%. As a result of that, about 80% of the speculators are now probably in negative equity (i.e. the outstanding debts are larger than their real estate investments). Some creditors are demanding repayments, and flats are being repossessed by banks and creditors in some case. Some speculators simply ran away.
Of course, this tells us very little about the use of borrowed fund in real estate speculation in the whole China in general, as it could well be a phenomenon completely unique for Wenzhou, and possibly for a few other places like the Ghost City of Ordos.
Or is it?