Chinese Property Market Faces Weakness, Developers Under Pressure to Reduce Inventory, Introduce Zero Down Payment to Attract Buyers.
In recent days, the discussion around the purchase of homes with “zero down payment” has ignited heated debates. This seemingly “threshold-free” way of buying a home has hidden risks that have raised concerns among the public.
On various social media platforms, real estate agents from multiple cities have been posting messages in the voice of potential buyers, luring traffic with phrases like “Buying my first home with zero down payment” and “Zero down payment saved my life”.
One poster claimed, “Buying a house in Guangzhou is not easy. The good ones are too expensive, the cheaper ones are too remote, and I have debts of 30. After relentless efforts and connections within the real estate industry, I finally found a residence in a great location with potential for appreciation. Most importantly, it cleared my debts with zero down payment…”
Another poster from Wuhan mentioned, “Originally, a house priced at 800,000 yuan would require a down payment of 120,000 yuan based on the usual 15% down payment. However, a friend was cash-strapped. The agent revealed a surprise – the house could be loaned up to 1 million yuan, and the excess amount will be refunded by the landlord.”
Posts about “zero down payment” purchases have been circulating on social media platforms in cities such as Guangzhou, Wuhan, Xi’an, and Zhengzhou.
According to a report by The Paper, Yan Yuejin, deputy director of the E-House China Research Institute, stated that during the downturn in the real estate market, developers often use tactics like “zero down payment” to attract customers. Historically, the “zero down payment” scheme involves developers or real estate agencies pre-paying or artificially inflating housing prices, usually through high appraisals or loans obtained through credit companies or banks in the form of mortgage loans.
Industry experts explain that some properties were initially priced higher and are now being sold at a lower price, or some second-hand properties are sold below the bank’s valuation but are still financed based on the original sale price or valuation, known as “high appraisal, high loan”. For example, if a property was originally selling for 20,000 yuan per square meter, but later is being sold at 16,000 yuan per square meter, at a typical 15% down payment ratio in some cities, the loan ratio would be 85%. The developer would create a contract based on the original price of 20,000 yuan per square meter and the buyer would secure a loan from the bank using that contract. Then, the developer would refund the excess amount above the total purchase price to the buyer as the down payment.
Recent activities in certain cities have included high cash back offers for housing buyers. In one example, a new housing project offered a maximum cash back of around 900,000 yuan. A salesperson explained, “For a property priced at 2.6 million yuan, a 20% down payment would be 520,000 yuan. Once the loan is approved, the developer will directly transfer 900,000 yuan to your account. Not only is it a zero down payment, but you also receive an additional liquidity of around 400,000 yuan.” The project sold over a hundred units within a week, focusing on pledged housing.
Lawyer Guo Ren, global partner at Yingke Law Firm (Shanghai), pointed out that the implementation of zero down payment marketing activities by developers requires a closer look. Some developers may extend the payment period to lock in customers. While offering zero down payment initially, they may demand the buyers to fulfill the down payment within a specified time frame. The current discussion in the market regarding zero down payment also involves the practice of disguised high appraisals or loans through bank contracts, which inherently involve fraudulent lending practices and carry certain risks. Additionally, for buyers, the money obtained through high property prices also increases tax obligations. In case of default, buyers face increased responsibilities regarding breach of contract and payments.
Chen Wenjing, market research director at the China Real Estate Research Institute, also believes that purchasing a home with zero down payment may seem to alleviate initial financial pressures for buyers but could lead to higher costs and monthly payment pressures in the future. “Zero down payment” purchases are more of a tactic used by developers and intermediaries to attract buyers. Buyers should carefully consider their financial status, loan conditions, legal compliance, and market changes when making decisions. When signing a property purchase contract, buyers should thoroughly read and understand the terms related to loans, repayments, defaults, and other aspects to avoid potential legal risks.
Recently, various local governments in mainland China have issued statements warning buyers to rationally evaluate the “zero down payment” policy and make decisions based on their individual circumstances and capabilities.