Home buyers refuse to continue paying their mortgages

0
  • A growing number of home buyers in China are refusing to pay mortgages on unfinished apartments.
  • COVID shutdowns have slowed construction activity and delayed home completions.
  • The payments boycott could deepen an existing debt crisis in China’s real estate sector.

A growing number of home buyers in China are refusing to pay their mortgages on apartments that are still under construction, adding to market concerns about an escalation in the country’s property debt crisis.

Homebuyers in more than 200 projects in 75 to 80 cities are refusing to pay their mortgages, according to a Nomura note released Thursday and seen by Insider. This represents less than 20 projects at the beginning of the week, Reuters reported Thursday, citing news reports and analysts.

“Presales are the most common way to sell homes in China, so the stakes are high,” Nomura analysts said in another Wednesday note seen by Insider. Property developers in China can sell houses before they are completed and buyers must start paying for them before taking possession of the units.

The curbs from the COVID-19 pandemic have slowed down construction activities and delayed the completion of apartments. Buyer sentiment has also slumped in China as movement restrictions drag on. The situation is so bad that some promoters have even started accepting crops for installments.

Developers are using mortgage payments to finance new property projects, so the fallout from non-payments is concerning as the sector also faces a cash crunch that began after Beijing clamped down on excessive borrowing by property developers.

The


liquidity

crisis led real estate giant Evergrande to default on its debt late last year. This spilled over to other businesses as banks tightened lending industry-wide. Real estate and related industries account for up to 30% of China’s GDP, thus, any impact would hit the world’s second-largest economy hard and could create a domino effect on China’s financial system, which in turn could spread to the rest of the world.

“The pre-sale model has dramatically increased developer leverage, so disorderly deleveraging can not only lead to tight credit for developers and massive defaults in offshore dollar bond markets, but also to an increase in non-performing loans for banks, which are at the center of China’s financial system,” Nomura analysts led by Jizhou Dong wrote in the Thursday note.

Chinese banks are reporting 2.11 billion Chinese yuan ($312 million) in loans that are at risk due to the boycott of mortgage payments, Bloomberg reported Friday, citing information from various banks. Chinese authorities have held emergency meetings with banks to discuss the mortgage boycott, Bloomberg reported Thursday, citing people familiar with the matter. There was no immediate solution.

The development comes at a sensitive time for China, as the Chinese Communist Party is expected to hold its 20th National Congress in the fall of 2022, when President Xi Jinping is expected to secure a third term.

Share.

Comments are closed.