![]() ![]() ![]() “What China is experiencing right now is a policy-induced crisis,” Gabriel Wildau, the managing director of risk analysis company Teneo, told Al Jazeera. Property prices declined for an 11th-straight month in July and are down as much as 30 percent compared with last year. In December, Evergrande, one of China’s biggest developers, defaulted on interest payments due to its offshore bondholders, followed shortly after by Kaisa Group Holdings. Suddenly unable to borrow under the new rules, the sector was met with a severe cash crunch. Many developers, it turned out, had been operating far outside the “three red lines” and were saddled with enormous debts. ![]() Under the policy, developers were required to meet strict markers of financial health, including a 100-percent cap on net debt to equity, to borrow from banks and other financial institutions. The policy had twin goals: lessening the economy’s over-reliance on property and tamping down on speculation that had put house prices out of reach for many middle-class Chinese. In August 2020, Beijing rolled out a “three red lines” policy aimed at carefully deflating a huge housing bubble that had been decades in the making. Why is China’s property market in crisis?Ĭhina’s property troubles are, in part, the result of deliberate policy decisions. With property accounting for 15-30 percent of China’s gross domestic product (GDP), the market’s woes spell trouble for the world’s second-largest economy – and potentially global growth as well. Hundreds of thousands of homebuyers are refusing to pay their mortgages for pre-sold properties as developers struggle to complete housing projects on time. Real estate prices have plummeted as authorities seek to rein in unsustainable debt and market speculation. Here is some sage advice about your home’s equity - don’t touch it! Keep your house payment low and retain all the equity in your home because you never know what this housing market will be like in a few years.China’s property market is in the midst of a slow-moving crisis. There is this fairytale belief that shifting debt like this will save you money. Realistically, that doesn’t take place because within a year most people will have those same credit cards maxed out again and are then truly exposed financially. Let’s be honest, if you are refinancing your home to pay credit card debt, that is not solving any issues of overspending, as you are just shifting your debt from short-term to long-term. #Housing bubble freeRefinancing a home can be expensive with hidden closing costs, and despite what you may hear or read, there is no such thing as free closing costs. Somehow these charges are built into the price because Doc stamps by the state, appraisals, and surveys are not done for free.Īdditionally, interest rates for conventional mortgages are nearing 5 percent and many times refinancing a home with moderate credit can add additional points of interest. Yes, right now, many existing homeowners can get equity out of their home because values have increased so much, but in doing so, you will be increasing your debt, monthly payment, and exposing yourself to foreclosure if the market cools down. Probably, the biggest mistake most homeowners made during the bubble was refinancing their homes in order to take out equity to pay credit card bills, buy a boat, or purchase some other luxury items. Keep in mind, unless you do something structurally to the home like add size or a pool, the value on your home will not improve much with additions such as Italian marble floors or specialty granite tops. In fact, the only things that mattered were size, condition, and location. After the housing bubble busted, homeowners were very frustrated with appraisers who gave no real value for all the upgrades they completed on the homes. ![]()
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