Shanghai property evaluators turn out to be agents of destruction

'It was common that flat buyers did not even have to pay down payments because of the overvaluation. In extreme cases, some buyers may even get some extra cash.'

Phinex Wong

Shanghai estate agent

WHAT A WAY to run a property market. Banks in Shanghai are comfortable with fixed prices for new flats but do not really understand how prices are established in a secondary market. It is a shortcoming common to financial systems accustomed to directed lending.

This did not stop them from getting into the mortgage market for secondary properties, however. They just took the risk, did not overly bother themselves with credit checks or valuations and, until recently, things worked out fine, seeming confirmation that they were conducting their mortgage business the right way.

One thing they were obviously doing wrong, however, was relying on estate agents for valuation of these secondary-market properties. No one else had any expertise in it and thus the estate agents got the job.

But what estate agents want is lots of middleman business in buying and selling properties. They naturally looked for every trick they could find to bring this business in and what better could there be than giving banks valuations that were higher, sometimes obviously much higher, than transacted prices?