Banks in Wenzhou forced to takeover houses due to real estate price fall

By | August 22, 2013

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Banks in Wenzhou forced to takeover houses due to real estate price fall

According to NBD news, now it is common in Wenzhou (a major city in East China’s Zhejiang Province which is famous for trading of small commodities and goods) that selling a house can’t enable the owner to repay the bank loans, this “upside down” phenomenon is intensified in Wenzhou in recently years.

A local court official said that the city’s courts handled 545 action cases in 2011, this number increased to 986 in 2012, and the number for merely the first half of this year is already 622, out of which seventy to eighty percent are involving real estate. It is estimated that the number of auction cases for 2013 is 3.2 times compared with that of 2011, out of which 80% cases would involve personal property excluding houses in business bankruptcy cases.

In July, there were about 10 communities offering more than 400 sets of remaining houses in Wenzhou by lowering the respective market prices. For example, a 377.92 square meters house of “Xinghe Bay Home” community was priced at 39,960 yuan (US$ 6,660) per square meter, much lower than the beginning price of 65,697 yuan (US$ 10,950) per square meter in November 2011 when the community first open for sale.

“Now ‘abandoning house’ is already very common, the landlords are really incapable to repay the loan, it is meaningless to talk about credit.” said a vice-president of a real estate company in Wenzhou, “the only possible way to stop this situation is avoid the price falling, or replace it with a steady rise; otherwise, there is risk in the banks and more severe damage to the social credit system.”

Some financial analysis believed that the credit risk triggered by falling house in Wenzhou has been generated, but the key problem is still in the real economy. And it is meaningless for the price of house to rise while no improvement is seen in the real economy.

ChinaAbout.net editorial comment:

In the past decade, similar situation in China was not rare. A lot of companies in various industries were attracted by the high profit and entered into the real estate market. With many business pouring their money and resource into the housing market, no doubt that a bubble is already there; the only matter is when it would happen and how it would happen.

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