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August 31, 2022 | Chinese Property Strife is Contagious

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Falling property prices and a growing cash crunch are upping financial pressures globally. Chinese real estate development and its capital flow to other countries like Canada helped inflate demand and prices from 2009 to 2021. Reverse effects are being felt worldwide too. See more on the implications for developers, lenders and investors in WSJ: China’s property market has slid into a severe depression, the real-estate giant says.  This video report offers further insight:

As China’s economy stalls, protests have broken out over frozen bank accounts and mortgage payments for unfinished homes. WSJ explains the reasons behind the simmering discontent and how Beijing authorities are trying to keep a lid on it.

Here is a direct video link.

There is also a growing trend of Chinese borrowers repaying mortgages early amid higher interest rates and falling property prices to reduce negative carry and free properties up for resale. Contracting credit is hard on lender profits; Chinese bank shares are down about 30% so far. See Chinese borrowers pile pressure on banks with early mortgage payments:

Bill Chen, a self-employed consultant in Beijing, took out a Rmb1.25mn, 25-year mortgage in 2020 to buy a second apartment in the Chinese capital. But rental income of Rmb6,500 a month does not cover his monthly mortgage payments of Rmb7,826, three-quarters of which is interest, and with no attractive alternative investment options, Chen decided to repay the mortgage this summer.

“I prefer predictable returns and saving on the interest on my home loans seems to be the only predictable returns [I can get] for now,” he said. Falling property prices also encouraged Chen to pay off the mortgage in order to be ready to sell the apartment if its value declines further. Chinese owners usually have to clear any mortgage before starting a transfer of property ownership.

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August 31st, 2022

Posted In: Juggling Dynamite

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