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by vxNsr
1043 days ago
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isn't the chinese market even more messed up because people are buying houses that don't exist yet, at least in 08/09 there was something, the asset itself, while overvalued did at least have some value, in china a lot of people just own and are paying a mortgage on a future promise. |
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An over simplification of Evergrande's issue two key issues are 1. Housing always goes up, but that alone is just a thought it needs an action. The action is 2. they used the sales of an unbuilt, future property to fund an existing, active project.
Again, a relatively common practice, but this is a form of leverage. It allows insane growth because you can start projects way before than you would normally. Of course they were levered up so hard that once the housing market cooled they couldn't sell future projects which then could not fund current ones etc etc.
While it sounds like a ponzi scheme, it's not since "if all the projects" completed then everyone who bought a house would have a house and all peoples would be happy.