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> The residents not only paid down payments, but took on a mortgage obligation for an un-built building. So what? They had a choice between paying more money f
by reisse 3y ago
> The residents not only paid down payments, but took on a mortgage obligation for an un-built building.
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.
- stickfigure 3y ago> So what? 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.
- ceejayoz 3y agoIn case anyone wants a cite on the Albania bit: https://en.wikipedia.org/wiki/1997_Albanian_civil_unrest https://en.wikipedia.org/wiki/1997_Albanian_civil_unrest Ponzi/pyramid schemes captured two thirds of Albania's population.
- callalex 3y agoWhy don’t poor people just get more money? It would solve most of their problems.
- aleph_minus_one 3y ago> Why don’t poor people just get more money? It would solve most of their problems. 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.
- jncfhnb 3y agoThe construction companies promised to build houses and funded the construction with sales of promises to build more houses. Now real estate is crashing, and the construction company is going bankrupt, and you’ve got home buyers who are underwater on a mortgage for a house that is not built. The construction company has billions in unearned revenue that it cannot afford to deliver on. 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.