Desperate homebuyers in dozens of cities are refusing to pay mortgages on unfinished houses, according to state media and economists at international banks.
In China, real estate firms are allowed to sell homes before completion, and clients must start paying off mortgages before they take ownership of new properties. These funds are used by developers to finance construction.
“Pre-sales are the most common way homes are sold in China, so the stakes are high here,” Nomura analysts said in a research report released Thursday.
According to numerous state media reports and data collected by a research firm based in Shanghai China Real Estate Information Corporation (CRIC), buyers in 18 provinces and 47 cities have stopped payments since the end of June.
“The number is still growing,” Tianmu said. said in a message with reference to statistics received from some buyers.
Developers only rented out about 60% of pre-sold homes between 2013 and 2020, Nomura analysts estimate, while China’s outstanding mortgages rose by 26.3 trillion yuan ($3.9 trillion) over the same period.
Experts say the problems have been brewing for a long time and could lead to financial and social unrest.
ANZ Senior China Economist Betty Wang says the problem is much larger. She estimates that the move could affect 1.5 trillion yuan ($223 billion) of mortgages, or 4% of banks’ total outstanding mortgages.
“What worries us is that if more homebuyers stop paying, the proliferation trend will not only threaten the health of the financial system, but also create social problems in the current economic downturn,” she wrote in a report on Thursday.
The troubles in China’s real estate sector began in 2020 when Beijing began to struggle with easy loans for real estate firms, leaving many large property developers short of cash.
According to Tianmu report, The buyers of the Evergrande project in Jingdezhen, Jiangxi Province, have fired the “first shot” in the current debt repayment protest.
“The Evergrande Longting project in Jingdezhen is due to fully resume operations by October 20, 2022,” the statement said. they wrote in an open letter dated June 30, posted online and widely circulated in the media. “If not, then all owners who have not repaid their loans will stop paying mortgages,” the letter says, adding that any losses should be borne by banks, local governments and the developer.
“We must beware of the spread of risk due to the suspension of payments on unfinished homes,” the document says.
Homebuyers are “the most innocent” because they are simply desperate and have no choice, the report said. But if the problem is not solved, it will lead to further damage.
“While financial institutions have real estate as collateral, unfinished projects can only become bad debts. When bad debts increase, it can create systemic financial risks,” he added.