China is facing a mortgage crisis as several thousands of unhappy homebuyers are refusing to pay their mortgage for unfinished or stalled housing projects. This was precipitated by property developers who have run out of capital to finish the construction.
Data accessed by news agency Bloomberg and the China Real Estate Information Corp revealed that homebuyers across 50 cities have stopped paying their mortgages on at least 100 projects.
A drop in home prices could also be one of the reasons why homebuyers are refusing to pay their mortgages. China considered these mortgages as safe banking assets due to high down payments as well as the collateral value they possessed.
Homebuyers owe 46 trillion yuan to Chinese banks in terms of outstanding mortgages and at least 2 trillion yuan worth of mortgages could be impacted if the boycott continues.
This spells danger for the Chinese economy since home sales and construction are China’s biggest growth engines. The property sector accounts approximately for about a quarter of China’s GDP. A real estate bust will be dangerous for the Chinese economy which is reeling from Covid induced lockdowns.
It could spread to the global financial system and also shake global credit markets.
China’s banks like the state-owned Agricultural Bank of China Ltd, Industrial & Commercial Bank of China Ltd and Industrial Bank Co said 2.11 billion yuan ($312 million) worth of loans are at risk of becoming non-performing assets.
Here is a list of banks and details of bad loans related to the mortgage boycott, according to news agency Bloomberg:
- Agricultural Bank of China – 660 million
- Industrial & Commercial Bank of China – 637 million
- Industrial Bank – 384 million
- Postal Savings Bank – 127 million
- Mingshen Bank – 66 million
- Everbright Bank – 65 million
- Citic Bank – 46 million
- Ping An Bank – 31.8 million
- Bank of Jiangsu – 31 million
- Zheshang Bank – 31 million
- Bank of Nanjing – 21.1 million
- Merchant Bank – 12 million
The mortgage boycott led to China’s bank shares and developer bonds falling. Emergency meetings have been held to understand the impact of the boycott but no solution has been offered. Beijing is trying to avoid a real estate crisis which will deal a heavy blow to the economy and banks are planning to tighten their mortgage lending requirements in high-risk cities.
Property developers across 20 cities have reported delivery issues. In Zhengzhou, 28% of the units are facing delivery issues. Changsha, Kunming, Fuzhou, Yancheng, Chongqing, Wuhan, Nanning and even Shanghai and Guangzhou were reported to have more than 10% of housing units which are facing delivery issues.
This could spell trouble for Xi Jinping, who is eyeing an unprecedented third-term, as the economy stares at a possible real estate crisis which could upend the recovering economy.
(with inputs from Bloomberg)
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