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China property crisis: Why homebuyers are halting mortgage payments

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NEW DELHI: A growing number of homebuyers in China have stopped making mortgage payments for properties, adding to the woes of the country’s already troubled real estate sector.
The situation is grim and is now impacting firms that were once deemed safe from cash crunch, including Country Garden Holdings, China’s largest builder by sales.
Property sales plunged for the 10th straight month in June, underscoring how government relief efforts are failing to curb the crisis.
It is in fact a big jolt for cash-starved property developers who have for long relied on pre-sales of apartments.
Bloomberg (2)

Homebuyers have stopped mortgage payments on at least 200 projects in more than 80 cities in China, and the numbers are rising with each passing day.
It has also impacted the banking sector adversely with hefty fall in values. They are also reporting a drastic fall in demand for housing loans by customers.
The crisis has further fuelled speculations of adverse impact on the economy and aggravated its real estate crisis.
Apart from protests and threats of mortgage boycotts, homebuyers are also considering taking their business to deep-pocketed state-owned developers, or insisting only on buying completed apartments.
E-house China Research and Development Institution estimated stalled real estate projects across China involve 900 billion yuan worth of mortgages in the first half, or 1.7% of the total outstanding mortgage loans, according to a report by Reuters.

Bloomberg2 (1)

Property woes mount
China’s real estate sector has been lurching from one crisis to another over the past year, as it grapples with mounting liabilities, a slowing economy and flagging demand, while its sources of fresh fundraising have been drying up.
Some big private developers like Evergrande have already defaulted on offshore debt obligations and struggled to raise funds from other sources, including banks.
A recent report by UBS estimated the property crisis in China to get worse, wiping off $1 trillion from the global market.
In other words, what started as trouble with China Evergrande Group is now snowballing into a crisis that risks engulfing the majority of the country’s developers, its biggest lenders and a middle class that has significant wealth tied to the property market.

GFX3 (1)

Home sales fall
Home sales tumbled 41.7% in May from a year earlier, with investment dropping 7.8%.
The real estate industry has an oversized impact on the economy. When related sectors like construction and property services are included, real estate accounts for more than a quarter of Chinese economic output, by some estimates. About 70% of household wealth is stored in property, along with 30-40% of bank loan books, while land sales account for 30-40% of local government revenues, according to Pantheon Macroeconomics’ Botham.
The worsening crisis will test authorities’ ability to minimize the fallout. Earlier this year, China was setting up a stability fund to provide support to troubled financial firms as risks to the economy grow. Handling such issues will be also key for President Xi Jinping ahead of a leadership confab widely expected to cement his rule for life.
The slowdown in construction is also hurting demand for building materials. Iron ore slumped more than 8% on Thursday, falling below $100 a ton for the first time since December, and dipped further on Friday.
A year ago, iron ore was trading comfortably above $200 a ton, with China’s wave of Covid-era stimulus feeding a boom for property and the steel market. Futures for steel rebar in construction collapsed in Shanghai to their weakest since 2020. Copper tumbled to a 20-month low.
In fact, China’s Covid Zero policy is exacerbating the situation by damping demand for property and depressing economic activity.
E-house estimated stalled real estate projects across China involve 900 billion yuan worth of mortgages in the first half, or 1.7% of the total outstanding mortgage loans.

GFX4 (1)

Swap wheat for a house
According to a report by Business Insider, some developers in China’s depressed property market are accepting wheat, garlic as down payment for properties to provide a boost to their housing sales.
As real estate investments in the country dropped, property developer Central China Real Estate offered to swap wheat for house as part of its promotion plan in Minquan County, Henan Province.
The report further mentioned that at 2 Chinese yuan ($0.30) for every catty, buyers can pay up to 160,000 yuan ($23,900) of their down payment with wheat.

Taxes at both Central and state level subsumed under GST (10)

With the objective of benefiting the garlic farmers in Qi County, the property developer was accepting garlic as payment on the occasion of new garlic season in the country.
“We are helping farmers with love, and making it easier for them to buy homes,” it added.
Other property developers in eastern cities of Nanjing and Wuxi were also accepting watermelons and peaches from farmers, the Business Insider report said.
What authorities are doing
China’s banking regulator repeatedly sought to reassure homebuyers and financial markets over the past week that pre-sold homes would be properly delivered, while encouraging lenders to provide funds as needed to worthy real estate projects.
Banks are also rushing to reassure investors that risks from loans to homebuyers were controllable, with at least 10 firms issuing statements.
State-owned Agricultural Bank of China said it held 660 million yuan of overdue loans on unfinished homes, while smaller rival Industrial Bank Co. said 1.6 billion yuan of mortgages were impacted, of which 384 million yuan have become delinquent.
Regulators have also stepped up efforts to encourage lenders to extend loans to qualified real estate projects.
According to a report by Reuters, the China Banking and Insurance Regulatory Commission (CBIRC) told the official industry newspaper on Sunday that banks should meet developers’ financing needs where reasonable.
The CBIRC expressed confidence that with concerted efforts, “all the difficulties and problems will be properly solved,” the China Banking and Insurance News reported.
Further, authorities may also allow homeowners to temporarily halt mortgage payments on stalled property projects without incurring penalties, Bloomberg reported citing sources.
The report added that homeowner eligibility and the length of grace periods would be decided by local governments and banks, and the yet-to-be-finalised proposal from financial regulators would require approval from senior Chinese leaders.
(With inputs from agencies)
Watch Chinese real estate sector in turmoil: Why homebuyers are refusing to repay bank loans



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