Chinese home buyers refuse to pay their mortgages, raising fears of an economic crisis

China is facing a mortgage crisis as several thousand disgruntled buyers refuse to pay their mortgages for unfinished or stalled real estate projects. This was rushed by property developers who ran out of capital to complete construction.

Data seen by the Bloomberg news agency and the China Real Estate Information Corp revealed that home buyers in 50 cities have stopped paying their mortgages on at least 100 projects.

A drop in home prices could also be one of the reasons buyers refuse to pay their mortgages. China viewed these mortgages as safe bank assets due to the high down payments as well as the collateral value they possessed.

Homebuyers owe Chinese banks 46 trillion yuan in outstanding mortgages and at least 2 trillion yuan in mortgages could be hit if the boycott continues.

This poses a danger to the Chinese economy since home sales and construction are China’s main growth engines. The real estate sector accounts for around a quarter of China’s GDP. A housing slump will be dangerous for China’s economy which is reeling from Covid-induced lockdowns.

It could spread to the global financial system and also shake global credit markets.

Chinese banks like the Agricultural Bank of China Ltd, Industrial and Commercial Bank of China Ltd and the state-owned Industrial Bank Co said 2.11 billion yuan ($312 million) in loans were at risk of become non-performing assets.

Here is a list of the banks and details of the bad debts linked to the mortgage boycott, according to the Bloomberg news agency:

  1. Agricultural Bank of China – 660 million
  2. Industrial and Commercial Bank of China – 637 million
  3. Industrial Bank – 384 million
  4. Post Office Savings Bank – 127 million
  5. Mingshen Bank – 66 million
  6. Everbright Bank – 65 million
  7. Citic Bank – 46 million
  8. Ping An Bank – 31.8 million
  9. Bank of Jiangsu – 31 million
  10. Zheshang Bank – 31 million
  11. Bank of Nanjing – 21.1 million
  12. Merchant Bank – 12 million

The mortgage boycott sent Chinese bank stocks and developer bonds plummeting. Emergency meetings were organized to understand the impact of the boycott but no solution was offered. Beijing is trying to avert a housing crisis that will hit the economy hard, and banks are considering tougher mortgage requirements in high-risk cities.

Property developers in 20 cities have reported delivery issues. In Zhengzhou, 28% of units are facing delivery issues. Changsha, Kunming, Fuzhou, Yancheng, Chongqing, Wuhan, Nanning and even Shanghai and Guangzhou are said to have more than 10% of homes facing delivery issues.

That could cause problems for Xi Jinping, who is eyeing an unprecedented third term, as the economy weighs a possible real estate crisis that could upend the economic recovery.

(with entries from Bloomberg)

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