China’s real estate sector has a debt problem.Large real estate developers like the distressed company Evergrande It has accumulated huge amounts of debt, leading to construction halts and many angry homebuyers.
Amidst the chaos, buyers across China united, threatened Stop mortgage payments on more than 300 unfinished housing projects. The Chinese government could release up to $1 million worth of relief funds. $148 billion It is intended to allow developers to complete their buildings. “Marketplace Morning Report” host David Brancaccio, along with Marketplace’s China correspondent Jennifer Pak, described the latest developments in the crisis.
Below is an edited transcript of their conversation.
David Brancaccio: So what about unfinished housing? What is it like sitting there? When you see one of these, is it like a pile of foundations and cinder blocks and cranes just sitting there?
Jennifer Park: yeah, exactly. And part of the reason they quit is because of COVID lockdowns. But the main reason is that property developers have run out of money. You may have heard of Evergrande. So they branch out into smaller areas, pay top dollar for land, and sell condominium projects before they’re built. And they usually charge a large down payment (usually 30%). But sometimes he’s heard of 50% and uses that money to build condos. And almost all developers have done this. at the same time. They also got cheap loans. So they started investing in areas where they had no expertise. Evergrande, for example, started getting into water bottles, electric cars, and even bought a soccer team.
Brancaccio: And these cheap loans are drying up.
Park: yeah, exactly. Chinese regulators were very concerned about this reckless spending. So they cut off access to easy credit. And the Chinese economy has also started to slow down. So investors started looking seriously at these condos. As a result, home sales have also declined. So the developers ran out of cash. And that’s when global investors got really worried.
Brancaccio: I mean, other than human interest in other humans, why? So my understanding is that US investors generally aren’t very involved in the Chinese real estate market.
Park: you are correct. But real estate is a big part of the Chinese economy, and the Chinese economy is connected to the rest of the world. When Evergrande and other developers don’t pay their suppliers and construction workers, these people don’t pay their bills and layoffs start to occur. And ultimately you will feel that Chinese authorities in the US really don’t want homebuyers participating in this boycott and are censoring the news. was really hard.
Brancaccio: And there is a kind of difference here. These protesting homeowners are not delinquent on their loans, but are threatening to boycott their mortgage payments. What’s the difference?
Park: Well, yes, in China, if you don’t pay off your debt, you can end up on a so-called deadbeat list and make your life miserable. I hope If you are a man, you need a condo to be considered marriage material. You need a condo to put your kids in a good school. And if you belong to the middle class, as many people do, real estate is still the only form of investment available to you. It’s a way to get the government’s attention.
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