18-07-2014, 09:56 AM
The risk of lower downpayment is borne by developers. In other words, the developers are willing to sell with a 25% discount, to ease the cash flow, with an option to redeem without interest, if all go well.
The zero-interest loans by the developers, should be unsecured.
Developer's zero-interest loans highlight China property risks
18 Jul 2014 06:55
[HONG KONG] China's third largest property developer, Evergrande Real Estate, has joined smaller peers in offering zero-interest downpayment loans, a practice reminiscent of the US housing boom that precipitated the global financial crisis.
The easy credit shows the gamble Chinese developers are willing to take to keep sales on track, but also highlights the risk of a broader industry correction if buyers default. So far such defaults have been rare in China, where household debt is low by Western standards and banks have traditionally required hefty deposits from buyers seeking mortgages.
Many analysts believe the slowing property sector poses the biggest risk to China's economy in the second half of the year, despite a rebound in home sales in June as state-controlled banks offered more credit to support the market.
Guangzhou-based Evergrande, the country's No 3 developer by sales, is offering downpayment loans of nearly a quarter of the purchase price to home-buyers for some of its projects.
Such loans skirt government rules that require a minimum deposit of 30 per cent of a home price, while buyers who have put down as little as 6 per cent upfront would find it easier to bail if the market turns. "Buyers who can't provide the 30 per cent downpayment are generally low quality," said Midland Realty chief operating officer Samuel Wong.
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Source: Business Times Breaking News
The zero-interest loans by the developers, should be unsecured.
Developer's zero-interest loans highlight China property risks
18 Jul 2014 06:55
[HONG KONG] China's third largest property developer, Evergrande Real Estate, has joined smaller peers in offering zero-interest downpayment loans, a practice reminiscent of the US housing boom that precipitated the global financial crisis.
The easy credit shows the gamble Chinese developers are willing to take to keep sales on track, but also highlights the risk of a broader industry correction if buyers default. So far such defaults have been rare in China, where household debt is low by Western standards and banks have traditionally required hefty deposits from buyers seeking mortgages.
Many analysts believe the slowing property sector poses the biggest risk to China's economy in the second half of the year, despite a rebound in home sales in June as state-controlled banks offered more credit to support the market.
Guangzhou-based Evergrande, the country's No 3 developer by sales, is offering downpayment loans of nearly a quarter of the purchase price to home-buyers for some of its projects.
Such loans skirt government rules that require a minimum deposit of 30 per cent of a home price, while buyers who have put down as little as 6 per cent upfront would find it easier to bail if the market turns. "Buyers who can't provide the 30 per cent downpayment are generally low quality," said Midland Realty chief operating officer Samuel Wong.
...
Source: Business Times Breaking News