China Property

In a symptom of the bursting property bubble in China, the issuance of Residential Mortgage-Backed Securities (RMBS) has fallen 92% so far this year. No new RMBS have been issued since February. This is an indicator in the loss of confidence in the world’s largest asset class. The business model of property developers in China is to sell uncompleted units, taking not only a down payment but a mortgage so they are fully paid, in many cases before construction has even started. Predictably enough, many end up not only short of cash, but in default on their debts. Now hundreds of thousands of people are refusing to make mortgage payments as their units go unfinished long past their contracted delivery dates.

Of course the failures of the developers impact on their suppliers, their banks and the local governments that rely on land sales for much of their revenue.

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