An article in the Economic Observer informs us that Chinese house flippers think 600 percent leverage, at annual interest rates between 4 percent and 15 percent, is for pikers.
One such piker is Mr. Yang, who assembled his leveraged bet by borrowing from multiple sources (all figures in yuan).
The property is 2.5 million.
The down payment 1.3 million.
He has 1 million in deposits
-of which 600,000 is a 3-year interest-free loan from family
-consumer loans of 100,000
-cash of 600,000
Mr. Yang also made use of P2P loans charging 0.475 percent monthly interest. The EO claims he's leveraged up 6 times, but among house flippers his amount of leverage is considered low despite interest rates on various consumer, business and private loans running as much as 15 percent annually.
The EO asks, "what are financial firms willing make highly leveraged loans to ordinary homebuyers?" The leverage from the loans drives up home prices, people borrow more cash and funnel it into lending, which goes to homebuyers who drive up home prices, who borrow more and funnel it into lending......
Household borrowing was less than 40 percent of new credit over the past 5 years, but as covered here, household loans in July were more than 100 percent of new lending. Meanwhile there are 700 P2P lenders with turnover of 140 billion yuan and an average loan period of 5.24 months.
Savills North China Chairman Zou Jinbiao told the EO: "Do not say the people are crazy, do not say the real estate crazy, don't say the financial institutions crazy, we seem to have few choices, invest in stocks get annihilated, a lot of investment in start-up companies is simply investing in storytelling, cars depreciate, nothing is better than buying bricks."
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