Mortgage boycott demonstrates the intensity of China’s property crisis
It began as a protest by frustrated apartment buyers in a single project in a central Chinese city. Now, tens of thousands of people across the nation are withholding mortgage payments on unfinished homes purchased from developers, including China Evergrande Group.
The wildcat boycott on loans worth up to two trillion yuan (US$296 billion) threatens to deepen China’s real estate slump by shifting attention from the country’s troubled real estate companies to its enormous banks. As a result of Covid-19 lockdowns, mortgages have become the most secure source of income for lenders.
The policymakers are vigilant. According to people familiar with the matter, financial regulators have urged banks to increase lending to builders in order to complete the projects, and officials are even considering granting homeowners a grace period on payments. One bank after another has reassured investors that risks are manageable and their exposure to the delayed projects is minimal, despite a decline in an index of lender stocks.
Shares and bonds of China’s property companies have also been dragged down, including those of some major players that had long been viewed as immune to the sector’s difficulties. “If this trend is left unchecked and continues to snowball, there is a risk that it could lead to a deterioration in the credit profiles of Chinese banks and dampen the recent increase in real estate sales,” said Chang Wei Liang, a macro strategist at DBS Bank.
The boycotts reflect the different risks associated with purchasing a home in China. In many nations, consumers must put down a deposit to secure a housing unit before it is constructed, but they typically do not begin making mortgage payments until they take possession. In China, loan payments begin with the initial down payment and can continue for years if a project is delayed. This pre-sale cash fueled the housing boom of the past decade by allowing developers to begin new projects before old ones were completed. In essence, the builders borrowed from the homebuyers themselves, although they owed them homes rather than cash.
The music began to stop last year as a result of a government crackdown on borrowing by overleveraged firms, resulting in at least 18 defaults on more than US$26 billion of dollar bonds in recent months, including those by Evergrande, Sunac China Holdings Ltd, and Kaisa Group Holdings Ltd, among others. The cash crunch has made it more difficult for developers to complete projects, despite Beijing’s repeated pushes to get construction underway.
China’s property market in decline as wealthy Chinese look abroad for a solution
As the Chinese economy slows, wealthy Chinese are looking for investment opportunities outside of China. This is causing a decline in the property market as buyers look to invest elsewhere. While this may be bad news for China’s property market, it could be good news for foreign countries that are seeing an influx of Chinese investment.
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GMA case study
ELLINGTON PROPERTIES, one of the prime real estate companies in Dubai, endeavors to craft beautiful environments for exceptionally high-quality lifestyles. Inspired by art and reflective of their owners’ aspirations, Ellington residences are classic in feel but contemporary of vision canvases to be filled with the experience and exuberance of life.
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