September 21, 2022
In July this year, a rare protest broke out in China, and some home buyers issued a public statement deciding to stop paying mortgages because of “unfinished” real estate projects. The government immediately introduced measures to allow mortgage payments to be held for up to six months, and to use policy bank funds to speed up construction.
Two months later, Reuters reports that limited progress on the foreclosure projects will exacerbate loan foreclosures.
Buyers of 342 real estate projects across China joined the boycott on September 16, up from 319 at the end of July, according to a list of projects built by loan defaulters on the open source website GitHub.
Ashley (pseudonym) from the central Chinese city of Zhengzhou is one of them.
Ashley told Reuters that although construction had resumed on her property, only a handful of people were working on the site, which she believed was only to “appease the owners.”
One project buyer Hefei Evergrande Group, who asked not to be named, said it was due to close in 2020, but construction on the site had been suspended for four years.
Partial construction resumed in late August with only about 20 workers, the buyer said. He further said that if there is no tangible result, the mortgage will not be repaid, “We will continue to protest – we will go to Beijing”.
The weight of public opinion and economic consequences
This “loan stop wave” happened at the time of the 20th National Congress of the Communist Party of China, the most important political event in China. At the same time, China’s economy is facing a crisis of stagnation after experiencing multiple lockdowns.
Affected by this, on the one hand, the government strictly controls social media and the petitions of those who have suspended loans; on the other hand, it uses government money to promote the resumption of unfinished buildings and stimulate the economy.
Ashley said the Zhengzhou government has repeatedly canceled meetings with buyers, and she and other project owners have been warned not to travel to Beijing to petition.
“I got a call from the police this week, asking me not to go around them and go to the higher authorities to protest,” he said.
Reuters added that although censorship on social media blocked information about the protests and deleted related videos, largely excluding them from the public eye, the boycott continued to expand.
As well as managing public opinion, the government is also trying to tackle the issue to prevent more serious economic consequences – Natixis said that if every remaining project was boycotted by mortgagees, it would n worth about 2.3 trillion yuan of loans. risk, accounting for 6% of the total mortgages.
Xu Tianchen, an economist at the Economist’s Intelligence Unit (EIU), previously told BBC Chinese that the recent decision by home buyers to repay unfinished home loans could lead to consumers staying away from the system before -sale of real estate, which will increase the number of Chinese real estate Companies facing current financing and liquidity pressures.
On 5 September, the Chinese government unveiled 13 policies to stimulate the economy, which clearly defined the use of special loans by policy banks to support the completion of construction and the delivery of residential projects that have been sold and delivered late In other words, China will use national policy banks to inject capital into “unfinished” real estate to complete the supply.
The Chinese government has set up a rescue fund worth as much as $44 billion, providing $29 billion in special loans for unfinished projects to restore confidence, Reuters reported, citing sources.
However, sources from property developers and banks said it may take time for the funds to be released. “Not everyone gets the money,” said an executive at a developer in Shanghai.
Gary Ng, senior economist at Natixis, said that the government’s support is not enough to rebuild the confidence of house buyers. He believes that the wave of loan suspensions will continue to rise, but the speed will slow down.
Over the past 20 years, China’s real estate industry has developed rapidly and become one of the main engines of economic growth. House prices in first-tier cities such as Beijing and Shanghai are among the most expensive in the world, and the ratio of house prices to resident income is much higher than that of major cities in the world such as New York, Paris, Tokyo, and London.
The World Bank’s China Economic Brief, released in June, concluded that by the end of 2021, China’s real estate investment will account for 13% of GDP, compared to just 5% in OECD countries; “If supply chain inputs are considered The real estate industry accounts for about 30% of China’s GDP. “
“Therefore, an uncontrolled adjustment in the real estate sector will have significant economic consequences.”
The solution proposed by the World Bank to China to solve the current real estate problem is that the aim of the policy in the short term should be to stabilize the market and create conditions for an orderly reorganization of the market.