https://asia.nikkei.com/Business/Ma...=9&pub_date=20220714213007&seq_num=9&si=44594
An unfinished housing project in Hubei Province's Huangshi City. Tens of thousands of home buyers across Chinese say they will refuse to pay their mortgages until developers complete unfinished housing complexes (Photo by Yusuke Hinata) CISSY ZHOU, Nikkei staff writerJuly 14, 2022 19:38 JSTUpdated on July 14, 2022 20:24 JST
HONG KONG -- Tens of thousands of Chinese homebuyers are threatening to stop paying mortgages on scores of unfinished housing projects, raising "huge risks" for banks and the country's debt-saddled property developers.
China's real estate sector is grappling with a crisis that has seen developers squeezed by eye-watering levels of debt, sparking a string of bond defaults among major groups including Shimao and China Evergrande -- the world's most indebted developer with about $300 billion in liabilities.
Now, buyers in more than 100 unfinished housing complexes across the country have taken to social media to warn that they will stop making monthly mortgage payments until developers complete the projects.
Despite the risks of being sued or punished under a government system called social credit, which can bring travel bans and other restrictions for people deemed "untrustworthy," the movement among furious homebuyers is growing quickly.
"When our survival is in question, when we are in a dire situation, social credit is just a paper tiger to us," said a statement this week issued by buyers of units in the Yufa Bailuyuan housing development in central Zhengzhou city. "We need to throw off those shackles and let the people who robbed us know that we are not lambs to be slaughtered."
Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished residential projects, ANZ said in a report.
The movement kicked off in late June among people who bought into an Evergrande project in southeastern Jingdezhen city. It has since spread to other parts of the country with about one-third of the unfinished projects built by struggling Evergrande, once China's top developer.
"If tens of thousands of homebuyers really stop paying their mortgage, the real estate companies will soon collapse because they have no liquidity," Dan Wang, chief economist at Hang Seng Bank China, told Nikkei Asia. "There are huge risks for banks, particularly local banks, whose assets are mainly in the housing market, and there is no way that the central bank could save all of them," she added.
Chinese banking and real-estate shares took a hit Thursday as investors reacted to the brewing crisis.
Unlike in some countries, it is common for buyers in China to pay 100% of the price of a presold home.
Nomura estimates that developers have only delivered around 60% of homes they presold between 2013 and 2020, while in those years China's outstanding mortgage loans rose by 26.3 trillion yuan.
Between the end of 2020 and March of this year, 4.4 trillion yuan in new mortgages were issued in the world's second largest economy, which has been struggling under China's strict zero-COVID policy, which led to lockdowns in major cities and shuttered factories.
"The presale model has significantly increased developers' leverage, so a disorderly deleveraging may not only lead to a credit crunch for developers and massive defaults in offshore dollar bond markets, but also rising nonperforming loans for banks, which sit at the center of China's financial system," Ting Lu, chief China economist at Nomura, said in a research note.
"As an increasing number of developers have failed to build and deliver presold homes in a timely manner, the presales model is likely to result in a vicious cycle, while the increasingly infectious subvariants of omicron may exacerbate the downward spiral," he added.
Caroline Wang, a 31-year old finance worker in Zhengzhou, and her husband made a 500,000 yuan payment for an apartment in October. They had expected to move in by the end of this year.
But two months after the couple put all of their money -- plus their parents' life savings -- into a dream home, construction was suspended after the project's developer allegedly misappropriated bank funds.
The couple is still on the hook for a 6,000 yuan monthly mortgage payment, a big chunk of their combined income of under 20,000 yuan. The couple is now renting an apartment.
"I am so stressed now and I don't even dare to tell my parents and my in-laws, because they are all farmers and it took them decades to save the down payment for us," Wang said.
Buyers in the high-profile Xitang housing project had not reached an agreement on joining the mortgage strike over fears they could wind up getting sanctioned by the government or sued for nonpayment, Wang said.
On Thursday, China's four biggest banks -- Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank - all described their exposure to the mortgage-payment threat as "manageable."
China Minsheng Bank, which focuses on loans to small and medium-sized enterprises, said it would "closely monitor the situation and respond quickly."
"The movement might prompt the regulatory authority to take measures to let some projects resume, like allowing state-owned enterprises to acquire these projects," Shuang Ding, chief Greater China economist at Standard Chartered Bank, told Nikkei. "In China, any risk to financial stability will increase the sense of urgency to solve the problem."
Additional reporting by Kenji Kawase
Chinese homebuyers call 'mortgage strike' over unfinished projects
Debt-saddled developers left scores of presold housing complexes incomplete
An unfinished housing project in Hubei Province's Huangshi City. Tens of thousands of home buyers across Chinese say they will refuse to pay their mortgages until developers complete unfinished housing complexes (Photo by Yusuke Hinata) CISSY ZHOU, Nikkei staff writerJuly 14, 2022 19:38 JSTUpdated on July 14, 2022 20:24 JST
HONG KONG -- Tens of thousands of Chinese homebuyers are threatening to stop paying mortgages on scores of unfinished housing projects, raising "huge risks" for banks and the country's debt-saddled property developers.
China's real estate sector is grappling with a crisis that has seen developers squeezed by eye-watering levels of debt, sparking a string of bond defaults among major groups including Shimao and China Evergrande -- the world's most indebted developer with about $300 billion in liabilities.
Now, buyers in more than 100 unfinished housing complexes across the country have taken to social media to warn that they will stop making monthly mortgage payments until developers complete the projects.
Despite the risks of being sued or punished under a government system called social credit, which can bring travel bans and other restrictions for people deemed "untrustworthy," the movement among furious homebuyers is growing quickly.
"When our survival is in question, when we are in a dire situation, social credit is just a paper tiger to us," said a statement this week issued by buyers of units in the Yufa Bailuyuan housing development in central Zhengzhou city. "We need to throw off those shackles and let the people who robbed us know that we are not lambs to be slaughtered."
Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished residential projects, ANZ said in a report.
The movement kicked off in late June among people who bought into an Evergrande project in southeastern Jingdezhen city. It has since spread to other parts of the country with about one-third of the unfinished projects built by struggling Evergrande, once China's top developer.
"If tens of thousands of homebuyers really stop paying their mortgage, the real estate companies will soon collapse because they have no liquidity," Dan Wang, chief economist at Hang Seng Bank China, told Nikkei Asia. "There are huge risks for banks, particularly local banks, whose assets are mainly in the housing market, and there is no way that the central bank could save all of them," she added.
Chinese banking and real-estate shares took a hit Thursday as investors reacted to the brewing crisis.
Unlike in some countries, it is common for buyers in China to pay 100% of the price of a presold home.
Nomura estimates that developers have only delivered around 60% of homes they presold between 2013 and 2020, while in those years China's outstanding mortgage loans rose by 26.3 trillion yuan.
Between the end of 2020 and March of this year, 4.4 trillion yuan in new mortgages were issued in the world's second largest economy, which has been struggling under China's strict zero-COVID policy, which led to lockdowns in major cities and shuttered factories.
"The presale model has significantly increased developers' leverage, so a disorderly deleveraging may not only lead to a credit crunch for developers and massive defaults in offshore dollar bond markets, but also rising nonperforming loans for banks, which sit at the center of China's financial system," Ting Lu, chief China economist at Nomura, said in a research note.
"As an increasing number of developers have failed to build and deliver presold homes in a timely manner, the presales model is likely to result in a vicious cycle, while the increasingly infectious subvariants of omicron may exacerbate the downward spiral," he added.
Caroline Wang, a 31-year old finance worker in Zhengzhou, and her husband made a 500,000 yuan payment for an apartment in October. They had expected to move in by the end of this year.
But two months after the couple put all of their money -- plus their parents' life savings -- into a dream home, construction was suspended after the project's developer allegedly misappropriated bank funds.
The couple is still on the hook for a 6,000 yuan monthly mortgage payment, a big chunk of their combined income of under 20,000 yuan. The couple is now renting an apartment.
"I am so stressed now and I don't even dare to tell my parents and my in-laws, because they are all farmers and it took them decades to save the down payment for us," Wang said.
Buyers in the high-profile Xitang housing project had not reached an agreement on joining the mortgage strike over fears they could wind up getting sanctioned by the government or sued for nonpayment, Wang said.
On Thursday, China's four biggest banks -- Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank - all described their exposure to the mortgage-payment threat as "manageable."
China Minsheng Bank, which focuses on loans to small and medium-sized enterprises, said it would "closely monitor the situation and respond quickly."
"The movement might prompt the regulatory authority to take measures to let some projects resume, like allowing state-owned enterprises to acquire these projects," Shuang Ding, chief Greater China economist at Standard Chartered Bank, told Nikkei. "In China, any risk to financial stability will increase the sense of urgency to solve the problem."
Additional reporting by Kenji Kawase
