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Why People Are Refusing to Pay Their Loans

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  • Tens of thousands of people in China refuse to pay mortgages for unfinished apartments.
  • The potential exacerbation of the country’s real estate debt crisis adds to market concerns.
  • Mortgage boycotts are a protest, not an insolvency, but an increased risk of social unrest.

China’s real estate market is at stake.

Real estate construction in China has slowed in the last two years due to reasons such as COVID-19 mobility restrictions and the cash crisis that constrains financing for construction activities.

Currently, tens of thousands of homebuyers — Bloomberg — — China refuses to pay mortgages for unfinished apartments. According to crowdsourcing, more than 320 projects in the world’s second-largest economy are at risk of boycotts. GitHub account “We Need Home”.

The suspension of construction activities could affect China’s RMB 4.7 trillion, or $ 696 billion worth of homes. According to Bloomberg Intelligence analyst Christie Hung, a construction project would require 1.4 trillion yuan, or 1.3% of GDP, to complete.

It all contributes to concerns that the country’s real estate debt crisis could be exacerbated.And because real estate and related sectors make up about one-third of China $ 18 Trillion Fallout from boycotts of GDP and mortgages could spill over World economy.

This is what Chinese mortgage boycotts are and why they are important.

Why are people now protesting in China?

In China, real estate developers can start collecting mortgage payments before the apartment is completed. This, like many other countries, is taking longer than expected due to the pandemic.

However, Beijing began curbing excessive borrowing in 2020 and last year Evergrande debt crisis..Industry as a whole Since then, the cash crisis has spilled over Spurred other developers to lead to even more stagnant projects concern Buyers may never see the apartment they are paying for.

China’s once fierce real estate market remains sluggish. As of June House price In China, it has been declining for 10 consecutive months, but disposable income has been declining for 5 consecutive quarters, so households are feeling financial pressure.

Home buyers for deadlocked projects are, in short, very unhappy.

“Many pre-sale homebuyers complain about developers running out of cash to complete a project they’ve already paid,” said Andrew Lawrence, an Asian real estate analyst at TS Lombard, a London-based consultancy. I’m holding it. “

“Many future buyers are watching how authorities react to this mortgage boycott. In the short term, this boycott is a supplier’s non-payment of loans, non-delivery of materials, and low levels. Has spilled over into developer sales, “added Lawrence. In a memo written on Thursday.

Despite the suppression of the pandemic, face-to-face demonstrations took place in various cities, including a strong protest by 200 people in Central China, Hubei Province, on Wednesday. The Wall Street Journal report. A group of buyers have also united to send a letter threatening to stop paying mortgages until construction resumes.

It is unclear how widespread these protests are. Censorship is cracking down For information on mortgage boycotts.

Why did people stop paying mortgages in China?

Bo Zhuang, a senior sovereign analyst at Loomis Sayles, a Boston-based investment management firm, told insiders.

“It’s not because they can’t or don’t want to pay, it’s a protest, not a deliberate default,” Zhuang said of the mortgage boycott.

People who refuse to pay mortgages are trying to get the attention of central and local governments — and they got it, Zhuang added. Unpaid fallouts have been added to existing cash crunches as developers use mortgage payments to fund new real estate projects.

Bloomberg News, regulators are considering mortgage holiday proposals that allow homebuyers on deadlocked projects to suspend payments without fines report Quoted on Monday, people familiar with the matter.

The central government will also encourage local governments to look for solutions instead of intervening directly, Zhuang said. “Each project has different issues in the field, so we can’t deploy one model for each project,” he added.

Solutions could include technical solutions such as the acquisition of a project by a state-owned developer or the adjustment of land-use specifications, Zhuang said.

What are the major issues with real estate in China?

Authorities are concerned about the situation because of real estate account For up to 30% of the country’s economy and up to 70% of middle-class household wealth.

Still, Chinese mortgage boycotts are unlikely to cause an immediate explosion in China’s banking system due to the small exposure of financial institutions to pre-sale mortgages, Zhuang said.

Financial services company Lucifer Authorities estimate that even a scenario where buyers do not intervene to ensure an apartment will hit the profits of 16 major commercial banks in China by 2.4%.

“The mortgage problem is small and poses a significant threat to the financial system, as the root cause of this problem is not a sharp deterioration in household balance sheets, but concerns about developer liquidity. I don’t think there is, “said Iris Tan, a senior equity analyst at Morningstar last week.

However, a long-term cash crisis of three to five years could strain the financial system and hurt the payment of external debt, Zhuang added.

Why are protests in China so important? And what are the potential dangers?

Because pre-sales are configured 90% of all real estate sales in China in 2021There are concerns that boycotts of mortgages could further undermine confidence in the country’s real estate sector.

“If an end buyer withdraws from a pre-sale contract and prefers to get a completed project instead or wait for a low price, a large-scale liquidation or reorganization of the developer will be required, therefore the authorities. How he responds to this boycott is very important: “I wrote Lawrence of TS Lombard.

Boycotts are more than just financial events. For the Chinese Communist Party, which will host the 20th National Convention in the fall, when President Xi Jinping is expected to secure his third term, these will have a negative impact on optics and increase the risk of social unrest during sensitive times.

After all, as Zhuang said, “This year should be a stable year, but it turns out that it is not.”

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