Meet China's Housing Debt Slaves

Tyler Durden's picture




 

Think Americans are the only people in the world toiling under a gargantuan, and unrepayable, debtload, which at last check was a massive $55.3 trillion, or about $175K per person? Think again. Meet Sherry Sheng, a 29-year-old Shanghai policewoman, who bought herself a 4,000 yuan ($642) black fur jacket, splurging for the last time before she starts paying off the mortgage on her first home.

Sherry is what is known as a Chinese "housing slave."

Bloomberg explains:

Sheng is part of a generation of middle class that Chinese media has dubbed “fang nu,” or housing slaves, a reference to the lifetime of work needed to pay off their debts. They’re taking on mortgages even as the government maintains property curbs to damp prices that have almost tripled since China embarked in 1998 on a drive to increase private home ownership.

 

“It’s a treat for myself because I could never afford such a luxury after I start repaying my housing loans next month,” said Sheng, who paid 1.1 million yuan for the one-bedroom apartment on the city’s western outskirts and will be using about 70 percent of her salary to service her mortgage.

 

China’s growing middle class reaching for homeownership helped property prices rebound starting in the second half of last year. They rose 1 percent in January from December, the biggest gain in two years, according to real estate website SouFun Holdings Ltd. Home prices in Beijing and Shanghai each rose 2.3 percent from December.

 

Average per-square-meter prices in 100 cities tracked by SouFun are five times average monthly disposable incomes. A 100- square-meter (1,076-square-foot) apartment today costs about 40 years’ annual income, according to SouFun and government data, even as salaries have more than quadrupled since 1998.

 

Sheng was able to buy her 50-square-meter apartment after borrowing a combined 770,000 yuan through a 20-year mortgage from Agricultural Bank of China Ltd. and a 15-year loan from the local housing providence fund. Her parents helped with the 30 percent down payment. She will repay about 4,000 yuan a month for the home, a one-hour subway ride from central Shanghai’s historic Bund that cost 16 times her annual salary, based on the apartment price and her income.

 

Chinese homebuyers typically use 30 percent to 50 percent of their monthly incomes to repay mortgages, said Wu Hao, a manager at the loan brokerage of Bacic & 5i5j Group, Beijing’s second-biggest realtor for existing homes. It advises clients to keep monthly repayments lower than one-third of their incomes.

 

The “general guideline” among Chinese banks is that a borrower’s salary should be at least twice their monthly payment; otherwise they’ll be asked to submit proof of assets, such as property, cars, or insurance to show their ability to service the debt, Wu said. Using 70 percent of monthly income to pay the mortgage is “very rare,” she said.

Why do we bring this up? Because the Chinese housing bubble is now the biggest it has ever been; according to some it is even bigger on a relative basis compared to the US housing bubble (either in 2007 or 2013).

The property market has already “heated up,” while home prices in major cities may rise as much as 10 percent in the next three months, said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, in an interview.

 

Loose monetary policy will drive housing prices and sales up in the near term, Hong Kong-based Jinsong Du, Credit Suisse Group AG’s head of property research, wrote in a report Feb. 18.

 

The new government may introduce more property curbs when it takes power in March. China may tighten credit policies for people buying a second home or raise the tax on gains on transactions of existing homes in the most affluent, or so- called tier-one cities, the China Securities Journal reported Feb. 1, citing an unidentified person.

 

Home sales in China’s 10 biggest cities almost quadrupled to 8.5 million square meters in the first five weeks from last year, property data and consulting firm China Real Estate Information Corp. said in an e-mailed statement Feb. 19.

Once it was tulips. Now, it's houses.

Chinese urban residents’ average disposable income rose 12.6 percent last year to 2,047 yuan a month, according to the statistics bureau. The average one-square-meter of new floor space cost 9,715 yuan in December, according to SouFun.

 

The shift to private home ownership stems from reforms started in 1998, when then Premier Zhu Rongji privatized state- owned housing provided at low rents to urbanites, transferring home ownership from the government to the families occupying the dwellings. About 230 million people moved to cities in the 2000- 2011 period, the biggest urbanization in history, according to the Chinese Academy of Social Sciences.

 

The idea of buying a property with borrowed money didn’t become popular until 2004 when home prices in major cities started rising fast enough to compensate for interest payments, enticing buyers to borrow to buy property, said Liu Yuan, a Shanghai-based researcher at Centaline Property Agency Ltd., China’s biggest real estate brokerage.

 

Today about 50 percent to 70 percent of home buyers in the first-tier cities of Shanghai, Beijing and Guangzhou use mortgages, borrowing an average 50 percent of a home’s value, according to Centaline.

Which is why, perhaps more even than the US, China is truly stuck between a rock and a hard place - on one hand it can not afford a real estate bubble pop as it would make the millions of debt slaves into millions of far poorer, deleveraging and in many cases, broke, debt slaves, and lead to the downfall of the financial system stuck holding mortgages that no longer generate cash flows. On the other hand, inflation is already resurgent, and as the recent halt to reverse repos shows, China is this close to a repeat of the spring of 2011, when it lost control of inflation, and had to demand that global central banks end their reflation effort for fears what hot money flows would do to its social stability.

Worst of all, however, is that in the pursuit of the great Chinese dream, more and more housing slaves will emerge, beholden to a insolvent system reliant on constantly creating over $100 billion in new liabilities (i.e., deposits) per month. Anything more than that, and you have hyperinflation; anything below that and you have a housing crash. And since Goldilocks only works for so long, when the PBOC finally veers off course, it will be the "Sherries" in China left holding the bag. A very empty bag.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 02/20/2013 - 17:59 | 3261289 Mongo
Mongo's picture

Shocking, absolutely shocking!

 

Check out Sweden. Massive housing bubble about to burst.

Wed, 02/20/2013 - 18:09 | 3261305 Kitler
Kitler's picture

She's a cop with a gun and a taste for expensive furs in a country where corruption rules.

She'll make out OK.

Wed, 02/20/2013 - 18:10 | 3261331 Ahmeexnal
Wed, 02/20/2013 - 18:58 | 3261461 Stoploss
Stoploss's picture

Chinese urban residents’ average disposable income rose 12.6 percent last year to 2,047 yuan a month, according to the statistics bureau.

 

Exactly, what the fuck is "disposable income"??

So, let me get this straight, the Chinese still have 2000 a month in disposable income to "blow" on a house note?

Well, there's the problem, in the US, disposable income is negative...

Are we sure about the housing bubble over there?

Wed, 02/20/2013 - 22:50 | 3262033 GMadScientist
GMadScientist's picture

You know...money left over after inflexible expenses like food, shelter, and electricity...for optional stuff...like filtered gasmasks.

Wed, 02/20/2013 - 19:01 | 3261463 Stackers
Stackers's picture

There are more vacant homes in Beijing than in the entire United States.

http://www.zerohedge.com/news/beijing-alone-has-50-more-vacant-housing-us

Wed, 02/20/2013 - 19:29 | 3261540 Lore
Lore's picture

That seems a bit misleading, like comparing apples to oranges:

1. The American numbers are understated (e.g., due to Shadow Inventory - millions of empty bank-owned properties sitting unlisted to avoid outright market collapse).

2. Driving through a big Chinese city, you don't see many of what we would call "homes." What you do see is millions upon millions of shitty multistorey shoebox apartments. So to say that Beijing has "millions of homes sitting empty" really means that there's an oversupply of apartments.  (Incidentally, stuffing people into shoeboxes is the Western city-transforming ideal of Agenda 21 greenshirts. They use phrases like "end of suburbia" and "walkable community" so it doesn't sound like a pigpen.)

 

Wed, 02/20/2013 - 20:23 | 3261691 Miss Expectations
Miss Expectations's picture

Here is a 1915 photo of the very walkable community of Saratoga Springs, NY (and I think this is what JHK is talking about):

http://www.shorpy.com/node/13251

(PS Do view full size)

Wed, 02/20/2013 - 22:18 | 3261961 Anusocracy
Anusocracy's picture

Where are all the fat people?

Wed, 02/20/2013 - 22:42 | 3262016 NumNutt
NumNutt's picture

Inside, playing on their Xbox....

Thu, 02/21/2013 - 00:16 | 3262246 willwork4food
willwork4food's picture

Old pictures of downtown Syracuse NY were equally impressive.

Thu, 02/21/2013 - 04:49 | 3262508 I only kill chi...
I only kill chickens and wheat's picture

Looks like it has a real Drug Store.

Thu, 02/21/2013 - 05:04 | 3262511 Lore
Lore's picture

Uh huh, The greenshirts dangle those tranquil shots from the turn of the last century, as though grassroots totalitarianism bears any relation to the libertarian constitutional past. It's not even a joke. It just seems perversely hypocritical.  Understand: AMERICA IS BEING DESTROYED BY PEOPLE WHO THINK THEY KNOW BETTER THAN MARKETS. GREENSHIRTS DON'T BELIEVE IN MARKETS.  THEY THINK THEY CAN DO BETTER THROUGH THE LOCAL CARBON POLITBURO.  The old horrors of history are dredged up and recycled "To Save the Planet" from the environmental equivalent of Al Qaeda.

READ IT AND WEEP: THE POST SUSTAINABLE FUTURE

It's so obvious to people who can think analogically. But our students are being dumbed down and turned into pseudo-religious zealots, not critical thinkers. 

Thu, 02/21/2013 - 05:49 | 3262527 BorisTheBlade
BorisTheBlade's picture

It's hard looking at pictures like this one to come to the conclusion that what has happenned to the urban environment and by extension to society in general can be referred to as 'progress'. Technology has surely improved and calculating capacity of all computers is now in excess of any human needs and what it's largely used for? Playing idiotic games, guiding missiles slaughtering people half way across the world? Fuck that. And don't get me wrong, I'm not against technology per se, but corresponding decline in HUMAN CULTURE has easily outdone all the good that technology could really bring. Fuck consumerism, it's a plague.

/ posted from my iphone

Sat, 02/23/2013 - 14:02 | 3269993 Lore
Lore's picture

That's what happens when easy credit dictates what gets built. Discrimination goes out the window.

Thu, 02/21/2013 - 04:50 | 3262509 sodbuster
sodbuster's picture

Up the street on the porch is a dude pimpin' his ho's- Over by the drug store is a tweeker dealing meth out of his wagon- not much has changed, I guess.

Wed, 02/20/2013 - 23:12 | 3262095 JuicedGamma
JuicedGamma's picture

Wow look at those elm trees. They're pretty rare now but before Dutch Elm Disease they were pervasive.

Sat, 02/23/2013 - 14:06 | 3269997 Lore
Lore's picture

They are beautiful.  'Ubiquitous' might be a better adjective. 'Pervasive' implies negativity.

Tue, 03/05/2013 - 01:12 | 3300028 Demonoid
Demonoid's picture

Try Detroit, 1915.

http://www.howardshollow.com/antiquepre1920Detroit/3.htm

Then look what a century of progress can do, based on a deep understanding of the mechanisms of wealth creation and how to strengthen them.

http://www.huffingtonpost.com/2011/03/23/detroit-decline_n_813696.html#2...

They call it "ruin porn" now.

Tue, 03/05/2013 - 01:22 | 3300029 Demonoid
Demonoid's picture

And for dessert, here's a side-by-side comparison of the Packard car factory, then and now.

Wipe your mouse side-to-side over the photos to see the transition.

http://www.freep.com/article/20121202/NEWS01/120823062/The-Packard-Plant...|defcon|img|FRONTPAGE

Wed, 02/20/2013 - 22:52 | 3262038 GMadScientist
GMadScientist's picture

Walkable: adj   conducive to being crossed on foot without tanks interceding.

Thu, 02/21/2013 - 09:27 | 3262762 Shizzmoney
Shizzmoney's picture

When the Chinese go and work at factories, they usually live in dorms in size of an average bathroom, 6 at a time.  Some even co-ed.  They have shitters that are basically just holes in the ground.

Don't laugh......because....its THE future of Serfdom de Americana.

Wed, 02/20/2013 - 20:49 | 3261767 johngaltfla
johngaltfla's picture

Dude, noboby should give a crap about the bailout. It's the "why" of the bailout, i.e. the Federal Reserve Act and the 16th and 17th Amendments which enslaved us!!!! BoA is just another shitpile being spray painted with gold Krylon.

Wed, 02/20/2013 - 18:18 | 3261352 Dan Conway
Dan Conway's picture

Exactly.  Her debt service is 70% of her reported income.  And she is a she which are in short supply so she will be courted by several rich scheming guys looking for a princess with police connections. 

Wed, 02/20/2013 - 19:16 | 3261512 Never One Roach
Never One Roach's picture

Wait until she wants to move or gets lung problems from the serious pollution there. Medical bills will eat the 30% left over after that whopper of a mortgage payment.

Thu, 02/21/2013 - 00:19 | 3262251 willwork4food
willwork4food's picture

Medical treatment is free in China. So is college tuition, but you have to prove yourself first.

Thu, 02/21/2013 - 10:13 | 3262976 johnnylaw187
johnnylaw187's picture

Unfortunately for her, cops in China don't carry guns, so people have close to no respect for them.  They do make New Orleans' cops circa Katrina look like boy scouts though in the corruption department.    

Now when the claxon sounds at the local garrison, then it's on.  

Wed, 02/20/2013 - 18:11 | 3261336 Ruffcut
Ruffcut's picture

Having a new world order has its privileges. IT's called ownership. Debt = owners= fuckyoufiststyleintheass. 

Wed, 02/20/2013 - 18:29 | 3261387 Banksters
Banksters's picture

Not home owner ship.  High level home renter.   Stop paying those taxes and it's gone.

Wed, 02/20/2013 - 18:33 | 3261395 Weyland_Yutani
Weyland_Yutani's picture

Agreed!

My friend recently sold his 30 sqm flat in central Stockholm for SEK 2,3 million. That is fucking ridiculous.

Wed, 02/20/2013 - 19:03 | 3261470 Stackers
Stackers's picture

Holy crap. $365,000USD for a box ?

Wed, 02/20/2013 - 19:14 | 3261504 bonzo112358
bonzo112358's picture

Try 750k for a box and its actually pending.

http://www.redfin.com/CA/Culver-City/4230-Revere-Pl-90232/home/6722472

Wed, 02/20/2013 - 23:42 | 3262176 W74
W74's picture

That house doesn't look too bad, I'm actually looking for something like that but at abou 1/6th of the price here on the east coast.  You Califianians are pay some ridiculous prices for housing.

Wed, 02/20/2013 - 22:53 | 3262044 GMadScientist
GMadScientist's picture

Move out of Yonkers.

Wed, 02/20/2013 - 18:48 | 3261421 ThirdWorldDude
ThirdWorldDude's picture

You nailed it, Mongo! Sweden is a bankster's paradise (apart from pushing for a cashless society [also this, though you'll need g00gle translator]) where you can borrow up to 85% of RE's value and choose not to pay off your principal as long as you pay interest to the banks... all the while those same banks must hold a capital reserve of 0,2% of issued loans.

Ah, Sweden, the next Spain...

Wed, 02/20/2013 - 19:13 | 3261498 Blond Viking
Blond Viking's picture

Unfortunately I think you're right. I bought my flat (90 square metres in the centre of Stockholm) for SEK 1 million in 1993. Today it's worth about SEK 7 million (i.e. more than USD 1 million). It's going to get really ugly here, this is the early 1990s all over again.

 

 

Wed, 02/20/2013 - 19:40 | 3261565 GFKjunior
GFKjunior's picture

But Bill Gates and the Economist said Sweden is the model the world should strive to be like?

Wed, 02/20/2013 - 18:00 | 3261291 busternc333
busternc333's picture

Calgon... Take me away.

 

Wed, 02/20/2013 - 18:01 | 3261292 AldoHux_IV
AldoHux_IV's picture

The new opium of the opium wars have been distributed upon the masses and that new opium is called leverage-- imported from the greatest minds of economics and academia. History repeating for those who seek not to learn but go full Bernanke with it.

Wed, 02/20/2013 - 18:18 | 3261351 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

the truth of your statement makes me wonder why good ole opium isn't good enough anymore

Wed, 02/20/2013 - 18:03 | 3261296 JackT
JackT's picture

Hello Friends, come on in and make yourselves at home.  We're all in this one together, can I get you a drink?

BTW: She's making about $900/month

Wed, 02/20/2013 - 18:01 | 3261297 harami
harami's picture

Holy fuck, the US has a bunch of unemployed debt slaves and China is about to have a metric shit ton of their own, what could possibly go wrong?

Wed, 02/20/2013 - 18:10 | 3261334 Fish Gone Bad
Fish Gone Bad's picture

When a shit storm happens a lot of people get covered in it, even those who did not go out into the shit storm.  Just sayin...

Wed, 02/20/2013 - 18:19 | 3261355 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

one wonders if that fur coat was from a shit leopard

Wed, 02/20/2013 - 18:40 | 3261407 neidermeyer
neidermeyer's picture

cat or dog..

Wed, 02/20/2013 - 18:03 | 3261303 BandGap
BandGap's picture

Hoory fuck! I carnot pray my hrome rone.

Wed, 02/20/2013 - 18:03 | 3261304 SmittyinLA
SmittyinLA's picture

those "housing slaves" mortgages are presumably at fixed rates however their party/state has fixed their growth and Yuan to the US dollar which is depreciating like a ripe bananna. 

70% of today's income is 50% next year, and drops 10% every year till its gone, 10 years from now her mortgage payments will be equal to one day's lunch.

Wed, 02/20/2013 - 18:49 | 3261430 Bunga Bunga
Bunga Bunga's picture

That's probably her wet dream.

Thu, 02/21/2013 - 00:24 | 3262262 willwork4food
willwork4food's picture

God knows it's mine.

Wed, 02/20/2013 - 18:07 | 3261308 Maos Dog
Maos Dog's picture

LOLZ

Umm, what was that myth I kept hearing the last few years about the "China housing market is mostly in cash?"

 

"Unlike U.S. home buyers who took advantage of zero-down-payment loans in the mid-2000s, Chinese home buyers usually put down at least 20 percent or 30 percent, if they aren’t buying their homes outright with cash. This means it would take a far bigger drop in real estate prices to cause people to default on their loans and therefore destabilize the banking sector."

 

MYTH BUSTED!!

Do NOT follow this link or you will be banned from the site!