Why is it that in just five years, the number of “broken homes” in platform auctions has tripled compared to the same period in 2015?
The annual “winter solstice” has just passed, and the Chinese property market has reached the “longest night, shortest day” time. The number of foreclosures, which I have been following and which represents the wind vane of China’s property market, can be said to be unsettling as well.
One
On December 16, China Securities Journal reported that the number of auction houses on the platform rose by more than three times compared to the same period in 2015.
Ali auction data shows that the current platform auction (liquidation) listings are 1342850 sets. The listings during the year as of December 14 were 272,979 sets, compared to 87,879 sets during the same period in 2015, an increase of more than three times in five years.
In Beijing, for example, data from the Hays Data Institute shows that in the first 11 months of this year, 4,909 sets of foreclosed properties entered the market, a multifold increase from the annual average of about 500 sets in previous years; the total transaction price was 21.899 billion yuan, with an average discount of 7.9%.
It can be said that these numbers are releasing an ominous signal, after all, the former owners of these foreclosed homes were basically forced to auction their houses for economic reasons, mainly because of unpayable debts. The spike in the number of foreclosures basically releases a signal of economic deterioration, just like the panic index against the S&P is the same.
So let’s take a look at what foreclosures are. What are the main reasons for the rise in the number of foreclosures?
Foreclosure” refers to the process when a debtor (homeowner) is unable to fulfill the mortgage contract or pay off the debt, and the creditor applies to the court for enforcement through various judicial procedures, the debtor’s house will be auctioned off to meet the claim with the auction proceeds, in this process, the auctioned house is the so-called foreclosure.
In layman’s terms, the homeowner owes too much debt and can only be forced to “abandon the house and cut off the mortgage” of the house. Why will foreclosed homes soar this year? The biggest reason for this is the increase in the number of bankruptcy units, in addition to the increasing number of people who cannot afford to pay their mortgage.
There are three main sources of foreclosed homes: criminal – such as corrupt officials property; litigation – such as mortgage payments broken; bankruptcy – the disposal of assets of liquidated enterprises; in the past few years, the first category of criminal-related property is not large, after the 2012-2016 anti-corruption, the proportion of corrupt officials property on the auction has been declining in the past few years.
However, the proportion of liquidation of assets of bankrupt companies has been rising. In particular, the bankruptcy of real estate companies, the bankruptcy of a company often brings hundreds or even thousands of houses to the auction. Unlike in the past, the bankruptcy of development companies in previous years was often a “fake bankruptcy” to avoid debts and defend their rights at a later stage, but this year, under the influence of the three red lines, there are many cases of “real” bankruptcy of development companies. For example, we have always thought that the real estate situation is good in Hangzhou, this year, there are three relatively heavyweight development company bankruptcy.
Hangzhou Huada Real Estate Development Co., Hangzhou Youkang Real Estate Company, Zhejiang China Railway Real Estate Group. Among them, Zhejiang China Railway Real Estate Group and part of the state-owned background. These three companies bankruptcy, bringing Taobao thousands of sets of houses on the auction, in addition to Hangzhou Youkang property headquarters building is Taobao auction.
Another reason for the surge in property auctions is the epidemic, due to the impact of the epidemic, many service industries, especially tourism, film and television, catering, hotels and other industries, the income of employees in this year is basically extinct, but also caused the monthly payment can not be paid, meaning that many people who abandoned the house to cut off the mortgage, is the general family. Because the monthly payment can not be paid, abandoned the house to cut off the mortgage, the house was taken away by the bank, and then on the judicial auction process. There may also be some people take the house mortgage to do business, the owner because of private lending to take the property mortgage, the money can not be repaid, it can only be forced to auction, for example, for special reasons to confiscate all personal property.
So, 2020 is a bumper year for property auctions. However, 2020, for many industries to fight workers, is an exceptionally sad year.
II
The question we want to explore is: Why did the number of “broken homes” increase threefold in just 5 years?
One of the main reasons is because of the rapid rise in housing prices over the past five years, which indirectly led to a huge increase in residents’ debt ratio. Since March 2015, the cumulative increase in house prices in first-tier cities has reached 44%, 33% in second-tier and 33% in third- and fourth-tier cities as a whole. Some hot new first-tier cities, cities below the third tier in the ring of metropolitan areas, and cities in major shantytown provinces in central and western China, doubled abound. From Beijing, Shanghai and Shenzhen to provincial capitals, from prefectures to counties, from metropolitan areas to city circles, from high-speed rail to subways, from new first-tier to third- and fourth-tier, from low down payment to high leverage, from land kings to 100 billion giants, in just a few years, the eyes are dazzling.
Look at the local foreclosure information in Hefei, Anhui Province, after the break in payments (network pictures)
The resident debt ratio, is in this process is constantly pushed up. The longer the housing price, the more people chase after the rise of borrowing money to buy houses, some are buying houses for self-occupation, there are also many use high leverage to speculate.
According to relevant data, China’s resident leverage ratio has reached 65% at the end of last year. If we go by economist Li Qilin’s previous statistics and replace the denominator with the disposable income of residents of urban and rural survey caliber, the result is a bit exaggerated: the current leverage ratio of residents is as high as 105%, higher than the United States and Japan and on par with France.
Between 2013 and 2018, housing loans accounted for up to 55.6% of household debt, with the share of multi-suite debt increasing year by year, with the share of multi-suite housing loans rising from 62.9% to 65.9% in 2017-2018, for example, surpassing first-suite loans and contributing 60% of the incremental consumer loans in the household sector. Apparently, more and more people are joining the ranks of home buyers, carrying more mortgage loans as long as they can buy a house.
Not only are homebuyers getting fancier, but even listed companies are getting “out of business”. 3,743 listed companies, 1,826 listed companies hold investment properties, accounting for more than 48%, with a combined market value of 1,334 billion yuan, and the average value of investment properties is also rising.
It is worth noting that in 2018, the figure is still 1,219 billion yuan, only in the first three quarters of 2019, nine months, an increase of more than 100 billion yuan. 100 billion is what concept? The 100 yuan bills all spread out, equivalent to 1,670 standard soccer field area, stacked up weight can reach 1,150 tons, layer by layer, according to the 3-meter building layer height, the height of up to 30,000 layers.
When the property market has become a speculative “pool of money”, a large number of buyers in the absence of financial support to buy a house, once the income is less than expected, abandoned house mortgage will naturally grow exponentially.
Three
There is also a big background for the increase of auction housing: the disposal of non-performing assets.
According to the first financial report, according to regulatory requirements, this year, the banking system plans to dispose of non-performing assets of about 3.4 trillion yuan, the first half of the year has been disposed of 1.1 trillion yuan, accounting for only about one-third of the year, which shows the pressure of the disposal of non-performing assets in the second half of the year. As the senior management of the CBRC said in an interview some time ago, “The banking industry is expected to dispose of 3.4 trillion yuan of non-performing loans for the whole year this year, compared with 2.3 trillion yuan last year to increase the intensity of disposal next year will be even greater, because many loans deferred, some problems will only be exposed next year.”
The second half of the sentence is the point: because many loans were postponed.
This year, many people in the first half of the year no income, but everyone is carrying a mortgage, income does not cover the expenses of the situation, there are non-performing loans is normal, these non-performing assets to deal with, it has become an important task to stabilize the financial system, which is one of the reasons for the proliferation of “broken house”. Because of the high leverage, because of the decline in income, many of the owner-occupiers mortgage almost exhausted the family disposable income, while speculators, the extreme even use the entire family credit card limit to borrow money to speculate on housing, leverage far beyond their own ability to bear and income level, are in the east wall to mend the west wall, tired of coping.
The increasing number of houses with broken mortgages and the five-fold increase in foreclosures in three years, which skyrocketed this year, indicate that the property market winter has arrived. Accompanying the increase in foreclosed homes with broken mortgages are more and more cities where home prices are falling.
In last month’s 70-city house price statistics, the top ten cities that fell a year were: Mudanjiang, Nanchong, Zhengzhou, Tianjin, Guiyang, Beihai, Taiyuan, Zhanjiang, Yantai, Qingdao. Northern cities occupy most of the mountains!
From the historical high point of each city to October 2020, 20 cities house price adjustment from the highest point are more than 10%, including 9 cities house price adjustment from the highest point are more than 15%, Langfang house price down the largest rate of 46.9%, basically waist cut. Qingdao fell 23%, Tianjin fell 22%, Shijiazhuang and Jinan fell 18%, and Beijing fell 15%. These cities where home prices have plummeted are also largely dominated in the north.
Over the past five years, many home buyers have formed an indestructible “faith” in real estate, that buying a house is to make money, hold the property can run away from inflation, the entity business is difficult, entrepreneurial hardship, it is better to invest their fortune in the property market, borrow money to buy a house, the price of housing is high and willing to take over. Such a “dream of price increase”, in front of the continuous emergence of “broken house”, will be smashed to pieces. Especially in the past two years, the prices of many cities have stopped rising, and even began to pan, while in many cities in the north, second-hand houses have shown a general downward trend.
Having said that, the main point is that if house prices rise, there is room for high leverage to survive; but once house prices stop rising, or even fall, expectations start to change and those highly leveraged speculative funds may ebb. The fall in income and the fall in house prices will form a scissors difference, which is the main reason for the increase in leverage breakage and abandonment of houses and mortgages.
The more critical thing is to look at next year, after all, although this year by the impact of the epidemic, but many families still have savings, mortgage can still be maintained. But once next year, if the income situation does not improve and unemployment is not alleviated, then many families will run out of savings and the army of mortgage breaks may be even more surging, so next year will be a tougher year for the majority of house slaves. Unless you find a way to keep your job and earn more money, you will probably face the risk of having your mortgage payment cut off and having the house you worked all your life to buy become a foreclosure.
And just today, news was released that the vacancy rate for office buildings in Beijing has hit a ten-year high. This indicates a dramatic deterioration in Beijing’s business environment, which also reflects the decline in Beijing’s manufacturing levels and the decline in residents’ incomes. And the listing rate of second-hand houses in Beijing is very high and prices have fallen by upwards of 10%, making it the top of the four first-tier cities.
So, after the big slump in Tianjin’s house prices, the only one of the top ten northern economies whose house prices are still struggling to hold up, it seems that house prices will be hard to keep in the next year. Beijing’s house prices lost ground, fully comparable to the foreclosure surge in the property market vane.
Everything depends on next year!
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