Housing Bubble Turns Chinese Into Debtors
No worries though, because mainstream economists say debt doesn’t matter! It’s someone else’s asset. Besides, home price appreciation offsets the debt.
The studio flat in downtown Beijing emptied the couple’s 400,000 yuan (US$59,000) life savings and they also incurred a debt of 1.35 million yuan to parents, colleagues and classmates to muster the remainder of the 35 per cent down payment. The rest of the purchase was financed by bank loans, with monthly mortgage repayments of about 20,000 yuan for 30 years.
“Home prices rose so scarily in the past year that we are afraid we could never afford a unit in Beijing,” the 30-year-old said, explaining their decision to take on so much debt.
…The net savings of Chinese households, defined as total outstanding deposits minus total outstanding loans, have stagnated or even begun to fall, showing that Chinese people are saving less and borrowing more.
High debt creates deflationary forces:
Cao and her husband are rich on paper: their flat is now worth more than 5 million yuan, but they still live in a frugal life. They’ve let the flat out 6,000 yuan a month and she lived with her husband at his army quarters. To make sure they can repay their debts and make ends meet, she has minimised discretionary spending on restaurant meals, clothing and travel.