In a special report about China’s real estate market, Shanghai Security News Online reported that some small and mid-sized developers in the second and third-tier cities in China have abandoned their businesses as they are no longer able to make payments on their loans. Taking Changsha, the capital city of Hunan Province, as an example, the developers of eight real estate projects have fled. There are similar cases in Nanjing City, Jiangsu Province, Jiaxing City, Zhejiang Province, Anyang City, and Henan Province.
The common thread among these run-away developers is that they have borrowed heavily, as much as several hundred million Yuan, from private money lenders. Such loans carry a high interest rate (in Changsha, they run from 3 to 5%, and sometimes even as high as 10% per month). Normally the loans are due in less than a year. While local banks charge only 0.7% per month, with China’s tightened bank loan policies, these developers could no longer get a bank loan.
According to the World Union’s report, for real estate developers in China, 1 trillion yuan (U.S. $163 Billion) in debt payments will be due soon.
Source: Shanghai Security News Online, February 28, 2012