5% fixed for 30 years. A strange, unknown hard money lender offers you 55% LTV at 14% for two years. Which one is the con man? I hope by now you will immediately say the first offer.
But be very careful of the lightning fast loan commitment at outrageous rates based on 50% of “quick sale value.” What the heck is quick sale value? There is no enforceable definition in the law.
The lender will charge you a $200,000 commitment fee for a $10 million commercial loan, as long as the loan does not exceed 50% of quick sale value.
When the appraiser goes out, he values your $20 million resort at just $7 million on a quick sale basis. 5 million loan, when you owe $7 million. When you decline it, the lender keeps your $200,000 deposit and blames you for over-valuing your property.
The Chinese people distrust banks for historical reasons. They therefore keep much of their savings in real estate. Usually they buy apartments (think of condo’s) that neither they, nor any renters, will ever occupy – at least not for a decade or two.
These apartments are often unfinished. They have rough electrical and rough plumbing, but these apartments often don’t even have interior walls, finished electrical, finished plumbing, or floor coverings.
One lender offers you 80% LTV at 3
Surprisingly, there are no real estate taxes in China, so the cost of ownership is low, other than the mortgage. Paying down on the mortgage, like the funding of an IRA, is how the Chinese people save. Most of the savings of the Chinese middle class is in the form of these extra 50 million to 65 million vacant apartments.
New homes sales by Evergrande, China’s second largest home builder, have fallen by a stunning 97%. Sales of homes by other home builders have plummeted as well. Who wants to buy a home today when the price will be significantly lower in two months. and perhaps 30% lower a year from now?
Since the Chinese keep their savings in these apartments, and since sales of apartments are plummeting, a great many of the Chinese middle class suddenly lack access to their emergency savings. With no apartment buyers, they can’t get at their dough.
Suppose you’re a middle-class Chinese worker. Do you feel comfortable enough, with your savings tied up for the next four years, to buy a new car this year? Or do you muddle through with your old one?
The lender then offers to fund a $3
Or suppose you owned a small manufacturing company in China. You build little parts that go into some other parts that eventually go into machines assembled by large companies. Would you right now (1) open a second assembly line to expand your business; or (2) get more conservative with your spending until you have rebuilt your emergency savings in the form of cash?
Now imagine similar decisions being made all throughout China. China’s middle class consumers – who number more than the entire US population – must be cutting back significantly on GA payday loans their consumption.
If China goes into a great recession (can there be any doubt?) – like we did in 1986, 2000, and 2008 – will this financial contagion remain in the peeing section of the Chinese swimming pool?
Living through a world war is not always the fate of some other guy. Did you know that World War I was once called, The War to End All Wars? As Dr. Phil might have asked, “How did that work out for you?”
