It takes two to tango: Creditors are part of the problem

Banks lend money for real estate more easily than other purchased on the basis that the value of the asset securing the loan is greater than the money lent. With a downturn in property values, individuals can end up holding negative equity in their property.

This is a problem. A big problem.

Our current system punishes individual lenders, holding them accountable for the whole amount.

But what if the banks were held accountable?

What if a home owner could settle the debt by simply handing the title back to the mortgagee? Would that more fairly distribute the risk according to the relative capacity of the parties to foresee such risks? Doubtless it would lead to lower property prices – though who would that disadvantage other than opportunistic property developers riding on the back of a pricing bubble?

Here in Shanghai, people talk about becoming a slave to their apartment, reflecting the overinflated property prices here compared with income… perhaps it is time to liberate our slaves.

One comment on “It takes two to tango: Creditors are part of the problem

  1. When will be the time that we don’t have to enslave ourselves to our apartments? When will the price bubble burst?

    Good questions but I don’t know the answers.

    One choice might be to lease apartment. But a lot of Chinese people cannot accept this idea. For many ladies in Shanghai, apartment is a prerequisite to marriage. This prolonged the lifetime of the pricing bubble.

    I read one book writen by a Japanese business management guru Ohmae Kenichi and he recommend us to consider leasing instead of buying an apartment.

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