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Comment by AnthonyMouse | Hacker News Reader

They don't have to be worth book value to be worth more than the outstanding loan principal. This is also why it can make sense to pay the bank in real estate. The bank doesn't need to sell it immediately because they don't need to pay a mortgage so they can just sit on it and collect rental income until they can find a buyer.

Another alternative is for the real estate trust to sell new shares into the market and use the money to pay the bank, or pay the bank in new shares. That dilutes the existing shareholders but doesn't force a fire sale of the properties.

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Evergrande has more debt than assets - including property - I believe. They can sell everything at book value and they will still owe money.

If you sell one building at a large discount to pay your bills, the market is likely to rapidly devalue the rest of your buildings

That's assuming your sale is the only data they have about the value of your assets. But real estate sales happen all the time.

Now, if everybody is selling every building at a large discount, that's a housing crash, and highly-leveraged real estate companies are toast. But that should only happen if there is a real estate bubble, in which case a market correction is ultimately necessary and the entities that buy at the peak of the market are supposed to lose their shirts.

What you want to do in that case is not to save them. They're done. What you want is to prevent a cascading failure into the rest of the economy.

There is a real estate bubble, and everyone, especially government entities, are deeply invested.

Does this actually happen? A bank that owns real estate and collects rental income on it?

That happens all the time in the US and other countries. Banks typically try to sell off those repossessed real estate assets fairly quickly because they aren't really in the landlord business, but when there's a supply glut they may have to hold for several years.

US regulators also require banks to move non-performing loans and assets off the balance sheet. Allowing banks to hold them makes the balance sheet murky and hard to determine if the bank is solvent. In the 2008 financial crisis banks sold houses off in blocks of 1,000 at a time to hedge funds.

This happens all the time, they pony up the money and you pay interest on the loan.

In Dutch, interest is actually called 'rente'.

Of course. Some banks have their own real estate arms that sell/rent/manage these types of assets

Until people demand their RMB, and all the bank has is piles of building materials…

> Until people demand their RMB

It's China, the authorities will just say "no." and then jail anyone who asks again.

Banks don't actually have as much cash as they have deposits. When you take out a loan they just credit your checking account and debit your mortgage account, which cancels out. When you pay the seller they debit your checking account and credit theirs. The amount of cash they hold hasn't changed.

Whether thing backing the credit to the seller's checking account is a mortgage loan or the deed to the property likewise has no effect on the amount of cash in their vault.

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