It's a real estate and mortgage crisis in China

It's a real estate and mortgage crisis in China

Roger Pettingell Sarasota Real Estate

Home buyers do not want to pay mortgages for unfinished housing projects. Authorities are urging banks to offer loans to builders to finish homes. Dangers also for the banking system: an explosive mix that threatens the communist leadership.

Rome (AsiaNews) – The debt woes of China’s property developers have emerged in the wake of last year’s crisis in teh colossal China Evergrande. After a run on banks in Henan, insolvent builders have triggered a nationwide wave of protests: faced with unfinished housing and delayed deliveries without a definite deadline, home buyers are announcing that they are suspending their mortgage payments.

The trend is spreading across the country and has forced regulators to ask banks to increase loans to builders.

The buyers of more than three hundred housing projects in 91 cities in China who have decided to boycott mortgage payments, threatening to extend the housing crisis to the banking system. Home buyers have lashed out at unfinished housing projects involving major Chinese real estate companies such as Evergrande and Greenland.

The largest number of unfinished housing projects is in Henan, where authorities have suppressed protests this month. According to several media reports, in order to dampen potential protests, the local authorities manipulated the ‘health code’ of the Covid tracking system of buyers of unfinished homes. The provincial administration also applied this technique to current account holders of failing local banks who wanted to withdraw their deposits.

According to China’s current real estate regulations, when debt-ridden builders are unable to finish projects, home buyers are still obliged to pay their mortgages. Analysts note that the turmoil in the real estate sector affects the middle class and threatens social stability, as home buyers take to the streets and stop repaying their loans.

On 14 July in Xi’an (Shaanxi), hundreds of home buyers protested in front of the local headquarters of the Banking and Insurance Inspection Commission. The authorities censored the protest on social networks and in the national media. The banks and regulators are accused by the protesters of failing to supervise the builders.

World Bank calculations put real estate investment in China at 13% of GDP in 2021. If the supply chain is taken into account, the percentage reaches 30%. Chinese households usually concentrate all their efforts on buying a house. A survey by the Central Bank of China shows that 70 per cent of Chinese households’ assets are real estate, while mortgages are the main component of their debts.

With economic stagnation and the obsession with high unemployment, Chinese people’s confidence in the property and banking market is crumbling. The idea of refusing to pay one’s mortgage is growing like an avalanche and such discussions have become a sensitive topic on social networks.

For financial analysts, unfinished buildings and bank runs have triggered rare protests that could pose a challenge ahead of the 20th Chinese Communist Party Congress next autumn, when supreme leader Xi Jinping is expected to win his third term.

Those who refuse to repay loans will be blacklisted by the social credit system. The ‘insolvent’ could be denied access to banking services and banned from taking high-speed trains or planes. Experts argue that home buyers have paid off their life savings and are choosing ‘default’ because they have no other options.

Evergrande’s collapse has already shown the fallout: lenders have suffered from bad debts; sporadic protests by customers and home buyers have broken out; construction workers have not been paid and suppliers have gone bankrupt. According to a Bloomberg report, at least 24 large Chinese real estate companies are on the verge of collapse. The market in the sector is going through a sluggish period. Official statistics show that residential sales fell by 31.8 per cent year-on-year in the first half of 2022.

At the end of 2021, the total area of unfinished housing in 24 large cities was 25 million square metres, or 10 per cent of the building area sold. The banking regulator urged lenders to offer loans to builders. According to Bloomberg, the authorities could allow homebuyers to delay their mortgage payments without damaging their social credit in order to stabilise the market.

Analysts point out that the temporary stimulus measures for the real estate sector were taken to ensure social and economic stability before the 20th Party Congress. The systematic risk is still looming if discontent continues to grow and more and more people take to the streets in protest. The game of borrow and build has come to an end.

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