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Typically banks release money as construction incurs expenses, not all at once before construction begins. Atleast in the usa.
by naveen99 4y ago
Typically banks release money as construction incurs expenses, not all at once before construction begins. Atleast in the usa.
- chii 4y agoi think this point is not clear to many people! Construction companies in the USA (and the west typically) don't get paid up front 100% for the full amount, but is often paid "pro-rata" based on milestones or % completed. The funds a released by an escrow (which the purchaser and the bank, if it's a mortgage, would choose). The situation described in china is not like that above - the developers got paid 100% of the cost of the build upfront, by the purchaser. The bank loans the funds to the purchaser for this purpose (at 60% LVR for example). The bank has the title as collateral - but since the property isn't built, there's no property to sell if it goes bad. It's just the land title. The reason the banks do this is because it's a politically driven mandate - the CCP in the past, wanted more construction, and this is one way to drive risk away from developers (so there'd be more developers!).
- naveen99 4y agoI think you can buy land at 50% LTV in the us also.