So what? They had a choice between paying more money for already built house now or paying less money but accepting the risks of developer's failure.
> This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
Ugh, it's not like venture investing when developers are not liable for the failure of the company. The law usually (don't know exactly about China) skews the balance in favour of property buyers.
> In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building.
And the cost of that high-interest construction loan is paid by the future residents. Not something you want when your goal is to give most of the population cheap housing.
A very large number of Chinese citizens will lose their savings to these ponzi-esque construction schemes. Vast waves of defaults may take the banks with them. In Albania something similar caused mass civil unrest.
https://en.wikipedia.org/wiki/1997_Albanian_civil_unrest
Ponzi/pyramid schemes captured two thirds of Albania's population.
Well, every clever businessman will simply increase the prices in such a situation since more people can now afford to pay more. Problem solved *not*. Markets are self-calibrating.
This is an absolute nightmare. Hundreds of billions of dollars in liability. And somehow getting the funding to complete these works will not improve their financial standing because they already took all the money for it.
Once you can turn everything into a model and an equilibrium the biggest systems of the world become much clearer.
https://en.m.wikipedia.org/wiki/Real_Estate_(Regulation_and_...
> the money is in an escrow and released as the construction progresses.
too.
The problem is it doesn't work: the fund release schedule can't be perfectly aligned with each stage of the constitution on a cost basis. There's a large amount of unfinished buildings (rather than not started at all) at a certain stage - it's the point when the_amount_of_fund_released - the_construction_cost_so_far is maxed.
I like the USA solution more - no mortgage for unfinished buildings. Developers can still sell it, but good luck.
Not sure if this is some kind of joke. Many countries have laws that permit selling appartments when they are about 80% complete. Some have lower, some higher percentages.
Just your average low-tier negative CNN propaganda, I guess.
I assume it's similar in most countries
What I call loan is a similar arrangement to mortgage. Buyer pledges property as collateral, pays about 20% out of pocket, rest is a debt to be paid. Defaults result in loss of ownership of property. The agreements are tripartite. Builder gets paid from the loan taken out by buyer in tranches and builder reputation matters along with market value assessment and buyer's credit profile for obtaining a loan.
When in fact, it's fairly normal situation almost anywhere in the world.
That other countries mortgage unbuilt homes is more a "what about" rather than "facts needed for reader to understand."
And it's infamous for misrepresenting the other parts of the world to better suit USA's interests. Cases of outright lying and negative propaganda that they know is a lie abound.
Banks can and do refuse to pay until things are completed and city inspections pass the work. Could a city inspector collude with a bank and developer to rip off customers? Sure... but even if that happens it can only be small scale. The odds of the scheme collapsing increases exponentially with every additional city/bank/developer participating.
Politically China works differently. I'm sure there are plenty of developers doing good work. That clearly must be the case - not every building is a pile of garbage. But being a more centralized single-party state with state-owned banks the opportunities for shenanigans is obviously higher. It may also be driven by how much local budgets are influenced by new projects rather than ongoing property taxes. There is an incentive to approve projects and it is embarrassing to admit we should be tearing down the new building because everyone involved cut massive corners... that might also scare off new customers for the next project. Better to cover everything up and keep the scam going.
For that matter state owned banks from any country are well-known for perpetually extending loans rather than admitting the loan is garbage. This is not unique to China nor news to anyone.
Since most people buy homes with mortgages, most homes in the USA aren't bought before they are built.
There’s no personal bankruptcy in China so buyers are screwed.
But do keep trying to justify everything as “negative propaganda against China”
You have to pay in full to the developer. By taking out a loan which consists of a downpayment.
The developer now has 100% of the money. And the buyer has nothing but debt.
The developers are either never breaking ground or never completing the building. Using the money to buy more land and sell more homes.
When they file for bankruptcy. The banks still need the money back from the buyer. Since the buyer has no home because it was never finished they effectively lose their investment and their lives as debt collection takes their cars, live-in home. Etc.
Stop spreading misinformation that buyers aren’t suffering. This is people’s lives at stake. Lying to people and pretending like nothing is wrong makes you a terrible human being when people’s lives are at stake.
I'm sure you have a good point about mortgages and developers and banks, but it's more important not to set the forum on fire, and that is what the site guidelines exist to avoid.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
https://www.cnn.com/2021/10/14/business/evergrande-china-pro...
The exact quote is:
"[Then] there is the problem of unfinished projects, even if there is demand. The majority of new properties in China — about 90% — are sold before being completed, meaning that any setbacks for home builders could directly impact buyers, according to economists."
What is the problem with the paragraph? It describes a practice that is common in China but may not be known to CNN's audience. It mentions a pitfall of the practice, which is true and has played out many times, in China and elsewhere, easily verifiable. Nowhere does it say that it's a China only problem.
In fact, read the whole article before playing the victim. Not long. You'd be hard pressed to say it's more negative that a US-related economy news piece.
I don't know how it works in other countries but in France for new apartments you almost always buy them before or during construction, which allow new residents to settle in right after the construction has finished instead of waiting for months for the sale.
The way we deal with the incentive alignment is simply by having a justice system that makes sure contracts are actually enforceable and mandatory insurance policy for developers should anything bad happen to their company.
This happens in India also.
The government of China let developers sell un-built apartments to future residents. The residents not only paid down payments, but took on a mortgage obligation for an un-built building. "The majority of new properties in China — about 90% — are sold before being completed." - CNN. This produced a terrible incentive for developers to do huge numbers of housing starts and then not finish the building.
In most of the rest of the world, developers have to finance construction with their own money or a high-interest construction loan, then sell the completed building. This gives developers a strong incentive to finish the job. Building quality control is often a problem, but unfinished projects less so.