This could be the biggest economic development this decade:
Archive link: archive.ph
Chinese start paying their mortgage before their projects finish. This in turn serves as easy financing for developers:
Like the vast majority of Chinese homebuyers, they had begun making payments before construction was completed. For years, this type of arrangement, which accounts for more than 80% of China’s home sales, gave developers easy access to funds and fueled rapid expansion as home prices soared.
This is extremely pro-cyclical. It works great when property prices go up, but once set in reverse, it will eat the whole economy alive:
The property sector accounts for about a quarter of China’s economy, and its deterioration is spreading financial duress among domestic industries.
The red-hot real estate industry has contributed immensely to China’s rapid economic rise and the dream of home ownership. With more than half of household wealth tied up in housing, the repercussions of a hard landing in the real estate sector have long been a major economic worry.
What was once a virtuous cycle has turned vicious. Home prices fell for the 11th straight month in July, and dozens of developers, including real estate behemoth Evergrande Group, have defaulted on their debts. The impact has rippled through land sales, labor, construction materials and home appliances.