Tuesday, December 13, 2011

Li's Parents Were Savers, They Saved Their Whole Lives

And their son lost it all in less than a month buying an overpriced apartment.

China's housing bubble is losing air

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

"I still haven't told them," Li, 29, said of his home's plummeting value. "It will just make them worry, and it's already too late."

And Chinese aren't nearly as leveraged as Americans. First-time buyers are required by law to come up with down payments equal to 30% of a home's purchase price; many put down more.
Wait, wait, the buyer just 9 paragraphs up in the same article is rather leveraged. You just described him. Did you forget him already?

Li plans on marrying his girlfriend this time next year, when the apartment is scheduled to be finished. He'll have to devote half of his $1,500 monthly salary to pay the mortgage.
?? We're missing some debt or downpayment here. $750 a month at 7% interest only gets you a 75k mortgage. Either he plans to put down more than the article stated, or they've got his salary wrong. Presumably he hasn't needed to come up with the rest of the money yet, since he hasn't taken delivery on the apartment and won't until next year. At which time he has to come up with 100k to get his mortgage to be a mere half of his salary. If he can come up with a 100k in a year, why is he pawning off the parents?

Either way, buyers putting 30% down since 2009 when prices have fallen 40% means they are already are 13% underwater. What about after the next round of price cuts?

Debt-strapped home buyers have been dubbed fang nu, or house slaves.
But the Western analysts and press insist they aren't over-leveraged. Who to believe?

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