Home News China’s Mortage Boycotts Are Spreading and Could Get Worse

China’s Mortage Boycotts Are Spreading and Could Get Worse

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A Mortgage boycotts in China are “still growing” and threatening to “much more widespread.” according to Homeowner protests have already affected 235 real estate development in 24 of 31 states in China, to analysts.

Chinese homeowners typically start paying their mortgages before the new property is completed, which helps to finance the construction. However, many projects are facing delays.

“The boycott reflects growing concerns among homebuyers about the ability of debt developers to deliver homes for sale and dissatisfaction with falling new home prices, where many buyers are suffering from paper losses. “It seems,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a memo on July 15.

Development can make ripples across the real estate sector.

China’s growing middle class has piled up their savings on property and believes it is a safe haven for hard-earned cash. Tianlei Huang, a research fellow at the Peterson Institute for International Economics (PIIE) think tank, quoted a 2019 survey by the Central Bank of China, where nearly 60% of the total wealth owned by urban households in China is for commercial use and Shown that it is for residential use.

Police officers are investigating people gathering at the headquarters of the Evergrande Group in Shenzhen, southeastern China, on September 16, 2021.

Noel Celis — AFP / Getty Images

He points out that China has the highest home ownership rate in the world, at around 96% in 2020.

Yellow adds it China’s Zero COVID Limit —It hit the economy — it affected both homeowners and large developers who lost their jobs and income. The huge real estate China Evergrande Group defaulted in 2021 and at least 12 other developers defaulted offshore bonds. “Many people are facing a serious cash flow crisis,” he says.

China’s property crisis

The scale of the problem is huge. In the past year alone, construction of about 13 million apartments has ceased, with up to $ 220 billion in mortgages tied to unfinished housing projects, according to Capital Economics. report According to Australian bank ANZ. The growing boycott can exacerbate the problem, creating a vicious cycle in which developers who are already struggling are further tied to cash.

read more: Why the fate of troubled real estate developer Evergrande Group is causing a big headache in China

In his memo, Evans-Pritchard argued that developers “are drawing new attention to the risks associated with buying unfinished homes and are likely to discourage buying new homes.” .. “Banks will be reluctant to extend their mortgages to buy new homes from debtors,” he warned.

Michael Pettis, a senior researcher at the Carnegie Endowment for International Peace in think tanks and a professor of finance at Peking University, said over the past decade, Chinese people have bought real estate with confidence that prices will only rise. .. “That belief has been shattered,” he says. “And from the history of the previous real estate bubble, we know that once it happens, it’s very difficult to prevent prices from falling any further.”

Regulators are already intervening. The Bank of China Insurance Regulatory Commission is asking banks to lend to real estate developers so they can complete unfinished projects. according to To Reuters.Bloomberg Report The authorities may allow homeowners to stop paying for stagnant projects, but that is temporary.

Comprehensive concern is the impact of the collapse of the real estate sector on the financial system, which is heavily exposed to real estate. July 18, Fitch Ratings Said Increasing mortgage defaults can be risky for banks and developers. “Authorities are likely to intervene to curb mortgage defaults from spreading to wider cities and larger cities,” he predicted. “But the failure of policy interventions to restore homebuyers’ confidence could test the resilience of the banking system and increase liquidity pressure. [for] Developer. “

Housing construction site photographed in Changzhou, Jiangsu Province, China on June 14, 2022

Sheldon Cooper — SOPA Images / Light Rocket / Getty Images

The crisis is at the heart of China’s development model. The world’s most populous countries have used construction and real estate sales to drive economic growth for the past decade. More than a quarter Of the economy.World Bank warned in it China economic outlook report Last month, China needed to take “decisive action” to “promote a shift to consumption” in order to “achieve a more balanced, inclusive and sustainable growth trajectory.”

Obstacles are not insurmountable. Huang said the real estate crisis would affect bank profits, but he didn’t anticipate a system-wide disaster. He points out that China’s down payment requirements are high (usually 30% for first-time buyers) and people are unlikely to leave mortgages unless real estate prices fall sharply.

Pettis, on the other hand, believes that a “combination of threats” may alleviate the problem in the short term. Authorities “can force banks to lend more to feasible but unfinished construction projects,” he says. “They can threaten real estate developers to complete a project and warn homebuyers that defaults will affect their social credit score.”

At the same time, he warns that attempts to find new growth engines may be painful for economies that rely on booming construction projects.

“When investment is over-invested and cannot be financially justified, trying to reduce it can lead to a sharp slowdown in growth and undermine the legitimacy of more investments,” he says. “In that case, low investment means low growth, and low growth is hard to avoid getting caught up in the vicious circle of justifying low investment.”

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Write in Amy Gunia [email protected]..

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