Comment by mcphage
6 months ago
> who is incentivized to push for a correction in this case?
Well, the government at the very least. From the article:
> Banks are highly regulated, so they can’t just loan whatever they want. The government insists that banks keep high margins of safety in their portfolio, and commercial loans are risky, so the terms they can offer are designed to limit risk. […] Second, the bank must keep a strict loan-to-value (LTV) ratio — so they won’t lend more than 80% of the value of the building (and often less than that).
The government says banks can’t loan more than 80% of the value of the building because it’s too risky. But what banks have done is instead maintained an inflated value of the property so they can loan out a higher percentage, which has led to the country being full of empty, overvalued property. Ie, a high risk of collapse—which is just what the regulation was intending to prevent. Lying about the value of an object to get around regulations is often considered fraud.
Looking from the perspective that government is a representative and reflection a the general population (yes, i understand it's not the case everywhere and so on), doesn't it mean people don't want this to be enforced, as it would lead to declining property values, which would devalue majority of population's assets?
Well, fundamentally no, I don’t think it reflects the will of the general population, since I don’t think they’re aware that this is how it works. At least, I wasn’t before reading this.
And beyond that: people’s assets are mostly residential real estate, not commercial real estate. So I don’t know that people will get that worked up about commercial real estate devaluing.