Home buyers in China refuse to pay mortgages for unfinished apartments

Desperate homebuyers in dozens of cities are refusing to pay mortgages on unfinished houses, according to state media and economists at international banks.

In China, real estate firms are allowed to sell homes before completion, and clients must start paying off mortgages before they take ownership of new properties. These funds are used by developers to finance construction.

The payment boycott comes as a growing number of projects have been delayed or halted due to a cash shortage that has left developer giant Evergrande defaulting on its obligations last year and several other companies seeking creditor protection. Home prices are also falling, meaning buyers can be tied to properties that are now worth less than they agreed to pay.
Analysts fear that a homebuyers’ strike could lead to new defaults by developers, leading to additional strain China’s banks at a time when the world’s second-largest economy is struggling to recover from the sharp Covid-related slowdown.

“Pre-sales are the most common way homes are sold in China, so the stakes are high here,” Nomura analysts said in a research report released Thursday.

At least seven major creditors, including Industrial and Commercial Bank of China (IDCBF), China Construction Bank (CICF)as well as Agricultural Bank of China (ACGBF), said Thursday they believe the risks are manageable, adding that they are monitoring the situation closely. bloomberg informed that the Chinese authorities were in emergency negotiations with the banks.

According to numerous state media reports and data collected by a research firm based in Shanghai China Real Estate Information Corporation (CRIC), buyers in 18 provinces and 47 cities have stopped payments since the end of June.

Tianmu NewsThis is reported by the state digital media. Thursday that buyers of homes in 100 or more projects in progress jointly announced that they would stop paying their mortgages. These projects scattered throughout central, southern and eastern China. One carrier The report estimated that 46,000 homebuyers were involved in just 14 of these projects.

“The number is still growing,” Tianmu said. said in a message with reference to statistics received from some buyers.

Developers only completed about 60% of pre-sold homes between 2013 and 2020, according to Nomura analysts, while China’s outstanding mortgages rose by 26.3 trillion yuan ($3.9 trillion) over the same period.

Experts say the problems have been brewing for a long time and could lead to financial and social unrest.

Citi analysts say the boycott could add $83 billion to Chinese banks’ bad debts and spark social instability at a time when the country is already grappling with a crisis. growing protests due to the deterioration of the condition of small rural banks.

ANZ Senior China Economist Betty Wang says the problem is much larger. She estimates the move could affect 1.5 trillion yuan ($223 billion) of mortgages, or 4% of banks’ total outstanding mortgages.

“What worries us is that if more homebuyers stop paying, the proliferation trend will not only threaten the health of the financial system, but also create social problems in the current economic downturn,” she wrote in a report on Thursday.

China tries to stop growing fury over frozen bank deposits
New home prices in 70 cities fell for the ninth month in a row in May, according to the latest data from the National Bureau of Statistics. Property sales also fell as buyers leave the market amid growth insecurity in their work and income.

The troubles in China’s real estate sector began in 2020 when Beijing began to struggle with easy loans for real estate firms, leaving many large property developers short of cash.

Evergrande, the country’s most indebted state-owned firm, was declared a defaulter last fall and is currently undergoing a debt restructuring. According to company documents, the developer still has many properties around the country that are not yet completed.
The real estate sector accounts for up to 30% of China’s GDP.

According to Tianmu report, The buyers of the Evergrande project in Jingdezhen, Jiangxi Province, have fired the “first shot” in the current protest against debt repayment.

“The Evergrande Longting project in Jingdezhen is due to fully resume operations by October 20, 2022,” the statement said. they wrote in an open letter dated June 30, posted online and widely circulated in the media. “If not, then all owners who have not repaid their loans will stop paying mortgages,” the letter says, adding that any losses should be borne by banks, local governments and the developer.

China real estate crisis worsens as major property developers default in Shanghai
AT editorial On Wednesday, the state-run Securities Times warned that if more buyers put mortgage payments on hold, the real estate market could take another big hit and the financial system could be hit by a systemic crisis.

“We must beware of the spread of risk due to the suspension of payments on unfinished homes,” the document says.

Homebuyers are “the most innocent” because they are simply desperate and have no choice, the report said. But if the problem is not solved, it will lead to further damage.

“While financial institutions have real estate as collateral, unfinished projects can only become bad debts. When bad debts increase, it can create systemic financial risks,” he added.

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