Over the past few weeks, tens of thousands of Chinese buyers have banded together and refused to continue paying mortgages on unfinished homes. Homebuyers in China frequently purchase “presale” homes long before developers have completed them, with mortgage funds then used to finance their construction. But with an increasing number of residential real estate projects delayed or stalled amid a growing housing crisis, homebuyers have used their leverage to avoid paying mortgages on homes they may never occupy or whose values may have plummeted. Nikkei Asia’s Cissy Zhou reported on the context and importance of the payment boycott:
Up to 1.5 trillion yuan ($220 billion) in mortgages are tied to unfinished residential projects, ANZ said in a report.
The movement began in late June among people who bought an Evergrande project in the southeast city of Jingdezhen. It has since spread to other parts of the country with around a third of unfinished projects being built by struggling Evergrande, once the main Chinese developer.
“If tens of thousands of home buyers really stop paying their mortgages, real estate companies will soon collapse because they are out of cash,” said Dan Wang, chief economist at Hang Seng Bank China, at Nikkei Asia. “There are huge risks for banks, especially local banks, whose assets are mainly in the housing market, and there is no way the central bank can save them all,” he said. -she adds. [Source]
Why are people across China refusing to pay their mortgages? Here’s what you need to know. https://t.co/5HrPqiw2in pic.twitter.com/Q4wWgZTYyn
—Bloomberg (@business) July 19, 2022
Braving the risk of getting bad credit, many homebuyers remained defiant in their boycott. In a group of online homebuyers, after one person worried about how stopping payments might affect their credit rating, another replied: “If you can’t even afford to eat, do you really care about your credit score?” The owners of a real estate project in Zhengzhou declared in a unanimous statement“At a time when we are desperate and struggling to survive, a credit score is just a paper tiger to us, a pair of chains that can be thrown away at any moment. It is the helpless cry of millions of ordinary citizens like us.
Some on social media began using “Camel” Xiangzi, the ambitious but ill-fated protagonist of Lao She’s 1937 serialized novel “Rickshaw Boy,” as a stand-in for duped and frustrated homebuyers. A now-deleted WeChat article (“Xiangzi decided to stop pulling the rickshawarchived by China’s CDT editors) included a poignant comment posted below a Douyin video filmed by a young couple in Zhengzhou, whose joy at buying a house had turned into anxiety about taking on a mortgage costly on a stalled real estate project. The comment, which resonated with many social media users, reads, “Xiangzi believed that if he worked hard to pull the rickshaw, one day he could own his own rickshaw.”
Rebecca Feng and Cao Li of The Wall Street Journal described how many buyers believe that, in order to avoid personal financial ruin, they have no choice but to boycott mortgage payments:
Homeowners who stop paying their mortgages risk being hit by China’s credit reporting system, which could make it harder to secure future loans. Knowing this risk, some people may still choose to default, analysts said.
“Many of the people involved in the movement come from lower-tier cities. These people have spent all their savings to buy houses…they need to be reassured that the houses will be finished. Otherwise, why wouldn’t they just be “flat”? said Zerlina Zeng, analyst at debt research firm CreditSights. [Source]
Aware of the threat of expanding social and financial unrest, the government has tried to silence talk of mortgage boycotts and prevent homeowners from organizing online. As Bloomberg reported, Chinese censors have deleted online discussions and documents related to mortgage boycotts:
Shared files maintained on platforms such as China’s equivalent of Quora, Zhihu Inc. and sites such as Kdocs and Wolai have been banned following reports that the number of buyers refusing to pay mortgages increased within days. GitHub, a popular file sharing site for coders, remains a source for users to post documents.
[…] Information shared on the platforms included names of blocked projects and images of letters from buyers stating they refused to pay. The GitHub page on the subject has been bookmarked or bookmarked by over 14,000 users.
Homebuyers have complained that their social media accounts on TikTok’s Chinese cousin, Douyin, and Weibo, which is similar to Twitter, have also been banned. Some buyers who asked not to be named said they were contacted by police.
Posts on WeChat and Weibo containing snapshots of graphs tallying mortgage boycotts or project delays have been removed. Among them, a July 13 analysis by property researcher China Real Estate Information Corp. which showed homebuyers stopped mortgage payments on at least 100 projects in more than 50 cities. [Source]
How does the government prevent people from stopping paying their mortgages? Simple and cruel. For SOE employees, the new rule is that stopping mortgage payments will negatively affect their careers. What’s crazier is that kids can be kicked out of school if their parents don’t pay their mortgages. pic.twitter.com/AqNEBaS9nn
— Shanghai Macro Strategist (@ShanghaiMacro) July 16, 2022
Chinese buyers are losing confidence in a housing market that has deteriorated in recent years. Home sales have plummeted in the wake of COVID shutdowns and rising unemployment, and investors are wary of financially troubled property developers. Dozens of developers defaulted, including Evergrande, whose $300 billion in debt reverberated through the wider economy after the company collapsed last year. S&P Global Ratings recently predicted that at least a fifth of all rated Chinese developers could eventually become insolventputting $88 billion of their troubled bonds at risk.
Good article on real estate issues in China. He quotes a Chinese analyst who worries that “lower sales mean developers are getting less money to ease their financial burden, which could lead to more construction delays.” https://t.co/OC5fqGQNrE via @WSJ
— Michael Pettis (@michaelxpettis) July 16, 2022
…even less likely to buy homes, making the real estate downturn worse.”
One of the points I’ve been stressing for years is the intense procyclicality of a growth model that relies heavily on infrastructure and real estate investment to generate growth.
— Michael Pettis (@michaelxpettis) July 16, 2022
9/ If the current crisis persists, no one will want to buy the properties developed by these weakened promoters. And this will lead to the financial ruin of these developers, since presales represent more than 80% of their income.
— Houze Song (@hzsong) July 14, 2022
12/ In sum, the current crisis is already worse than Evergrande, and could become disastrous if Beijing does not act decisively.
— Houze Song (@hzsong) July 14, 2022
The magnitude of the problem prompted the government to intervene. So far, the boycott has affected projects in more than 50 cities and potentially threatens two trillion yuan ($296 billion) in mortgages to stalled projects. The Chinese real estate sector accounts for up to A quarter the country’s economy, and many state banks are exposed to mortgages. Over the weekend, as Reuters reported, Chinese regulators encouraged banks to lend to qualified real estate projects:
The China Banking and Insurance Regulatory Commission (CBIRC) told the official industry gazette on Sunday that banks should meet developers’ financing needs when reasonable.
[…] The rebound in Chinese banking stocks was also aided by news that China will accelerate the issuance of special local government bonds to help supplement the capital of smaller banks, as part of efforts to reduce risk in the sector.
China may also allow landlords to temporarily suspend mortgage payments on stalled real estate projects without incurring penalties, Bloomberg reported after the market closed Monday, citing people familiar with the matter.
[…] In Sunday’s interview, the CBIRC urged banks to “assume their social responsibility” and actively participate in considering plans to bridge the financing gap and support property project acquisitions. [Source]
In another intervention, the government is preparing to allow homebuyers to temporarily suspend mortgage payments on stalled residential construction projects. The measure would boost confidence in the market, but it risks backfiring if other homebuyers are encouraged to suspend their mortgage payments, or if buyers of completed homes start asking for debt relief. steady decline in real estate prices.
China may allow landlords to temporarily suspend mortgage payments on stalled real estate projects without incurring penalties, sources say https://t.co/ItCbyI4tsL via @markets
—James Mayger (@JDMayger) July 18, 2022
Translation by Cindy Carter.