The number of abandoned houses in Wenzhou, China’s “Entrepreneurs’ City”, may reach up to 15,000 after prices plunge and their owners are unable or are no longer willing to pay off their mortgages
September 27, 2013 Leave a comment
Wenzhou homeowners abandon their properties as prices plunge
Staff Reporter
2013-09-26
The number of abandoned houses in Wenzhou in eastern China’s Zhejiang province may reach up to 15,000 after their owners are unable or are no longer willing to pay off their mortgages, reports Guangzhou’s 21st Century Business Herald. Wenzhou is the only city in China that has relaxed its restrictions on property purchases and allows some buyers to purchase a second house after the city’s property prices fell for 22 consecutive months. The average property price plunged 25.9% from 21,005 yuan (US$3,400) in January last year to 15,565 yuan (US$2,500) the following August, while properties previously driven up by speculation slumped by half their price. Many people now find their properties worth less than the mortgages they owe to the banks and are choosing to abandon them.The city’s banking regulatory commission admitted that to the issue but said the number and risks involved are not as much as media reports and the situation is under control.
Yang Hongxu, an analyst with research institute Shanghai Yiju, said the property crisis in Wenzhou has been caused by poor property market prospects, the private banking crisis and a debt bubble. Yang added that the three are intertwined and cannot be resolved immediately.
Zhou Dewen, the chief of Wenzhou small and medium business association, said the value of a property priced at 10 million yuan (US$1.6 million) has now dropped to less than 5 million yuan (US$817,000). However, the buyer would have originally paid a deposit of 3 million yuan (US$490,000) and may have borrowed as much as 7 million yuan (US$1.1 million) in loans. In such an instance, the buyer cannot help but consider abandoning the property, Zhou said.
Adding to the property market’s woes is the fund shortage facing private businesses. A sizable amount of local residents’ savings was erased during the private lending crisis in Wenzhou where non-performing loan ratio at local banks climbed to a high of 4.01% in March this year.
Around 80% of the properties auctioned off by Wenzhou intermediate court as of August were private houses, which including those being sold because their owners have abandoned their mortgages after their properties depreciated in price. The amount of unpaid mortgages is estimated to reach 2.4 billion yuan (US$387 million), or 46.14% of the city’s total bad property loans.
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