China pushes back as homebuyers protest mortgage issues

Owners complain about multiple unfinished developments

Chinese homeowners are being censored via social media (Photo Illustration by The Real Deal with Getty Images)
(Photo Illustration by The Real Deal with Getty Images)

Chinese authorities are censoring social media posts in response to growing protests from homebuyers who are threatening to stop repaying home loans on unfinished projects.

Frustrated buyers gathered in Wuhan last week outside the office of a bank regulator, saying they wouldn’t make payments for more than 300 unfinished properties across the country, the Wall Street Journal reported. The projects include some from developers such as China Evergrande, whose chairman was just forced out, and Kaisa Group.

Censors have been scrubbing references to mortgage boycotts and online petitions, even as the China Banking and Insurance Regulatory Commission asked banks to provide credit to developers that need more financing to complete projects. Analysts have estimated the total amount of at-risk mortgages in the country is somewhere between $150 billion and $370 billion.

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“The threats of stopping mortgage payments are definitely worrisome,” Owen Gallimore, head of credit analysis for Deutsche Bank’s Asia Pacific flow-trading desk, told the outlet. “But this is unlikely to cause major stress to the Chinese banking system.”

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Incomplete projects make up a small portion of China’s mortgage market and are mostly limited to struggling developers, more than 30 of which have defaulted because they can’t sell new offshore debt.

China doesn’t have many mortgage delinquencies. Banks often require large down payments and their bad-debt ratio of mortgages was less than 0.5 percent in 2021.

At the same time, many Chinese developers sell apartments before developments are fully built, often using cash from the presales to further finance the projects.

Housing officials in Xi’an, in Shaanxi province, said they would begin monitoring developers’ use of escrow funds. In Tianjin, authorities are asking developers how much money they would need to borrow to speed up construction on delayed projects. Evergrande Chairman Xia Haijun was told to resign, as well as Chief Financial Officer Pan Darong, amid an investigation into whether some of its deposits were used as security for others to borrow from banks and then failed to repay the loans, according to Bloomberg.

— Victoria Pruitt