High-rises in Tianjin
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Mercedes Benz & BMWs used to be common fixtures on the streets of Xinyi in Xuzhou city of Jiangsu province. But now that four major local property-development companies have recently gone bankrupt, the economic bubble in the area has collapsed.
The entire property market is in jeapordy of collapsing as China continues to tighten its housing policies, reports the Shanghai-based First Financial Daily.
The owners of the four major property firms in Xinyi — Jin Xunhua, the legal representative of Xinyi Ordos Real Estate Development Co; Liu Wenzhong, the owner of Zhongtong Real Estate Development Co; Zhang Yijiang, the owner of Forever Property Development Co; and Lu Zifei, the owner of Scenic Property Development Co — are all exiting the market.
The report said that after China introduced tightening measures for the property sector, the capital supply chains of property firms became strained and were eventually disrupted. Currently, Jin is out on bail and his assets have been used to pay debts; Lu and Liu are under investigation, while Zhang continues to work as usual and is trying to use houses to pay off debtsand undergo debt restructuring.
Since the second half of last year, frequent reports began being circulated of property-firm owners in Xinyi fleeing due to the inability to repay debts.
In recent years, it has become common for Xinyi's property development firms to borrow from private lenders. Liu bought land in 2009 with loans that carried monthly interest rates as high as 6%. He was expecting total sales to touch 300-400 million yuan (US$47.03 million-$62.7 million), and development costs to be less than 200 million yuan (US$31.35 million).
Liu had not expected the government to introduce its stringent property policy in 2010, after his construction projects began in the autumn of 2009. Pressured by weak sales and insufficient revenues,
Liu began a vicious cycle of borrowing anew to pay old debts at very high interest rates. Liu is said to be burdened with debts exceeding 600 million yuan (US$94.05 million
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