Another Housing Scam Unearthed in China; Over $1 Trillion in Subprime Leverage; Guangzhou To Join Frenzy

ZH: China Is About To Unleash A Monster Housing Bubble, In Six Easy Steps
1. The business owner creates a fake employment contract with his maid or driver, showing an impressive income to justify a high monthly mortgage.
2. The owner sells his property to his maid/driver at the highest price possible (as much as the bank will appraise for). Maid/driver doesn't care about what the price is and accepts the asking
3. The owner gives his maid the money for the down payment of 30% (lowered recently as PBOC policy), while receiving the the full or above full value of the property
4. Maid/driver moves into the upscale property of the owner, which is why mainstream media is characterizing the boom as 'upgrade buys'. And continue to live there until the actual owners decide to stop outlaying for the mortgage payment.
5. The owner cashes out of the property basically with PBOC's help (ease of credit, lowered down payment etc), promptly moves the money out of China through import/export channels, contributing to capital outflows.
6. At some point in the future, the owners will stop making mortgage payment, since they've already cashed out of the property with a huge windfall. Bank goes to foreclose; maid/driver will go back to living where they lived before.
The above is supposedly being done by Hong Kong investors. At the top of the original story Ilinked below) gives another method. A guy in Beijing says he put their 7 million yuan house in his wife's name and divorced her. Then she sells him the home for 10 million, he pays 3 million down (to himself) and borrows 7 million. He has 7 million yuan to spend. If the price drops, he'll take the money and give the bank the house. If the price rises, he can earn a profit too.

Weixin: 杠杆上的楼市

Another article puts a figure on the amount of leverage involved in various schemes such as zero down payment loans. It says public data reveals the amount of capital used for leveraged transactions by various realtors: Lianjia has ¥200 billion, Soufun ¥210 billion, 我爱我家 ¥80 billion. Altogether the industry probably has well over ¥1 trillion in funding outside of the banking system. This is not replacing leverage from bank loans, but layering more leverage on top, as was done with the stock market bubble in 2014-2015, when people borrowed off market in order to reach minimum capital requirements for margin.

wallstreetcn.com: 杠杆上的楼市:媒体称中介场外配资规模或超万亿

Despite the Ministry of Housing warning it can slow prices if need be (China MoH: 5 Steps To Slow Rise in Home Prices), the bubble may be ready to enter overdrive. The city of Guangzhou hasn't participated in the rally much to this point, with home prices trailing the massive increases in Shenzhen, so city officials are planning to lift buying restrictions.

EO: 广州“限购”松绑在即开发商谨慎涨价
Following the Shenzhen since last year rising 16 months, Beijing, Shanghai in this year also began fever. Even Hangzhou, Nanjing and other second-tier cities are panic buying. In contrast, although the Guangzhou property market volume and price are quite rational.

However, things may have some changes. February 29, the Guangdong provincial government issued "Guangdong Province, the supply-side structural reforms to the inventory action plan (2016- 2018)" and five action plans called for the discontinuation of housing projects "below 90 square meters accounted for more than 70% of all houses" and first-time home buyer minimum down payment decreased to 20%.

...March 2, "Guangzhou Daily" published an article citing local authorities said a new policy is currently under study. The article also said "relaxing restrictions" may be discussed.
Developers are cautiously raising prices...

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