A rapidly growing number of disgruntled Chinese homebuyers are refusing to pay mortgages on unfinished construction projects, compounding the country’s housing woes and raising fears the crisis will spread to the broader financial system.
Omebuyers suspended mortgage payments for at least 100 projects in more than 50 cities on Wednesday, according to researcher China Real Estate Information. That was up from 58 projects on Tuesday and just 28 on Monday, according to Jefferies analysts including Shujin Chen.
“The names on the list have doubled every day for the past three days,” Ms. Chen wrote in a note released Thursday. “The incident would dampen buyer sentiment, particularly for pre-sold products offered by private developers amid increased supply risk, and weigh on the gradual recovery in sales.”
The refusals to pay underscore how the storm engulfing China’s real estate sector is now affecting hundreds of thousands of ordinary people and poses a threat to social stability ahead of a Communist Party congress later this year. Chinese banks, already grappling with the challenges posed by developer liquidity shortages, are now also facing homebuyer defaults.
According to Jefferies, the delayed projects account for about 1 percent of China’s total mortgage balance. If every buyer defaults, it would cause non-performing loans to rise by 388 billion yuan, Ms. Chen said. The report didn’t give an estimate of how many buyers snub refunds.
Chinese bank stocks continued their recent decline on Thursday, with the CSI 300 Banks Index falling as much as 3.3 percent. A Bloomberg Intelligence index of Chinese developer stocks slipped as much as 2.7 percent.
Debt sell-off spreads to companies once thought safe from liquidity crisis
Analysts believe a drop in home values could be another reason for refusals to make mortgage payments.
“Investors are concerned about the spread of mortgage payment difficulties to buyers simply due to lower home prices and the impact on home sales,” Chen wrote.
Average selling prices for properties in nearby projects in 2022 have averaged 15 percent lower than acquisition costs over the past three years, analysts at Citigroup said in a statement Wednesday. China’s home prices fell for a ninth month in May, with June figures due for release.
The crisis engulfing Chinese developers is entering a new phase, extending a debt sale to companies once thought safe from the liquidity crunch, including Country Garden Holdings, the largest homebuilder by sale.
While rising non-performing loans are “manageable” for Chinese banks for now, “against the backdrop of China’s slowing growth, residents expecting worse future earnings and shrinking home sales, more risk events are likely to materialize,” affecting China’s social stability, Ms. said Chen from Jefferies.
Advance sales involve increasing risks
Analysts at Nomura Holdings said the refusal to pay mortgages stems from China’s widespread practice of selling houses before they are built. Confidence that projects will be completed has waned as developers’ money problems have increased.
Even before the crisis, developers have only delivered around 60 percent of the homes they pre-sold between 2013 and 2020, while outstanding mortgage loans have risen by 26.3 trillion yuan, Nomura analysts including Ting Lu wrote in a statement on Wednesday .
“Pre-sales pose growing risks to developers, homebuyers, the financial system and the macroeconomy,” Ting wrote. If homes are not built on time, households’ willingness to buy new homes decreases, and rising commodity prices can result in presale funds not being sufficient to build them.
“We are particularly concerned about the financial impact of homebuyers’ movement to halt mortgage repayments,” Mr. Ting wrote. “China’s real estate downturn may finally have a negative impact on domestic financial institutions after hitting the offshore high-yield dollar bond market.”
https://www.independent.ie/business/world/buyers-of-new-homes-in-50-chinese-cities-go-on-mass-mortgage-strike-41843726.html Buyers of new homes in 50 Chinese cities are staging a mass mortgage loan strike