Surging homeowner loans in China raise alarms over debt

Benjamin CarlsonNovember 27, 2016

ricky l

5 seconds ago

House loans are usually long-term - about 20 to 30 years to repay.

As long as a household has one or more person working that is fetching income to repay the house loan per month, then debt from house loan should not be too big an alarm - as this phenomenon is experience by many developed and even developing countries.

The only worried is that the household lose their jobs and affecting the ability to repay the house loan will be an immediate hit.

The problem start when many household start losing jobs and income --- and impact their ability to repay house loan --- this will be translated into a default problem for the banks.

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  ricky l

  now

  Another problem that will hit the banks is when the property bubble burst, and the housing prices started to fall.
  
  When this happen and when people lose their jobs and their income - and unable to pay the housing loans ---- payment default will arise.
  
  This means that banks will have to auction off the houses in default as the houses will normally be pledge as collateral in exchange for the housing loans.
  
  But with a big fall in prices of the houses when the property bubble burst, banks will have problem recovering their loans when the price fall well below the market price.
  
  This scenario will be similar to the US sub-prime crisis - where many rural houses become worthless and banks are laden with houses as collateral but cannot fetch any prices in the auction - as no one want to buy the auction houses even at a very low prices.
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    ricky l

    now

    Thus housing loans extended to small city or small townships (similar to US sub-prime crisis) will be most at risk - as compare to those in big cities (as big cities will still have demand due to congregation of people in bigger cities).