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Property owners in areas around Beijing have been giving away their flats rather than continue to pay their mortgages, after four straight years of dropping values have left their homes worth less than their outstanding loans, according to a report from Xinhua News Agency.
The report said Hebei province homeowners in the cities of Sanhe and Zhuozhou, as well as in Gu’an county, have been unable to sell their properties in the current market downturn. They have chosen to give away their properties, accepting the financial loss, because they can no longer afford to cover the debt.
Zhang Yumei, an economics professor at Hebei University, commented that such flats are not really free, because the new owners must pay the outstanding mortgage. It would actually be cheaper to buy a new flat if the price of a second-hand unit has dropped more than 30%, because such a drop would leave it in negative equity, she added. Besides, nobody will take a “free” flat unless they can get a discount from the mortgage issuer, Zhang said.