The Difference Between China and US

January 11, 2010 No Comments »

speculation

I thought this little tidbit illustrated the difference between Chinese and US policy when it comes to housing.

In response to an unhealthy run-up in home prices in some parts of the country, China’s Cabinet recently announced new measures to curb the rise, including larger down payments for second homes.

Among the changes, the Cabinet will now require a whopping 40 percent down payment on new residential mortgages for those who already own a home.

According to the Xinhua news agency, the move is intended to reduce property speculation, increase the supply of low-income housing, and speed up the construction of new residential housing projects.

During the run-up of housing prices here in the states a few years back, scores of banks and mortgage lenders welcomed 100 percent financing on second homes and even investment properties.

Not only that, but one could apply for a mortgage on an investment property with no money down and provide ZERO documentation.  All you needed was a credit score.

Sure the mortgage rate was astronomical, but the idea was to sell or refinance in a matter of months once the home appreciated by some ridiculous amount.

Of course, the bubble burst and millions of foreclosures sprang up, leaving numerous speculative housing developments vacant while proving to be an ongoing drag on home prices.

Now I’m not saying China is perfect (or close to it), but it’s nice to see a little restraint here and there.

Comments are closed.