Posted on Thursday, October 21, 2010
ORDOS, China — As the real estate action in Kangbashi New Area reached a fevered pitch last year, banks that are controlled by the national government, concerned about overbuilding, began restricting loans to property developers here.
Many builders barely broke stride. They turned to underground banks that are part of China’s thriving gray market.
Real estate brokers say buyers here, too, often sidestep official bank loans, financing their home purchases from hidden sources of income, whether graft, undeclared bonuses from government jobs or money earned legally but not reported to tax authorities.
Such money, which does not show up in government data on personal income, is common in China and helps explain how so many people can purchase real estate that they officially cannot afford.
So frenzied is the Ordos real estate market that some property developers have willingly taken out gray-market loans with interest rates as high as 30 percent.
“The decision was easy,” said the spokesman for one of the city’s biggest developers, who said he could not be identified because his boss had not authorized his talking about underground borrowing.
“We could easily make a 300 percent return on a property development,” the spokesman said. “If you think like that, paying 30 percent interest is really small. Anyone would do it.”
NYTBy DAVID BARBOZA