The Chinese government faces a crisis as there are thousands of unfinished apartments in the country even as people who have taken loans for housing await their completion and the country experiences a rise in bad debts. The debts stood at 29 per cent of total loans in 2022, writes Federico Giuliani for a report in Insideover.
People are now refusing to repay their mortgages and price declines in the existing-home market are the sharpest in nearly a decade, according to Giuliani.
The crisis may endanger people’s livelihoods as many Chinese are investing all their savings in housing.
The government is desperately trying to ease the panic. The China Banking and Insurance Regulatory Commission is asking banks to increase loan support for real estate developers so that they can complete unfinished projects. The government’s logic is that once the homes are ready, the disgruntled homebuyers can be convinced to call off their mortgage boycotts, according to the Insideover report.
The mortgage boycotts have been affecting the country.
Real estate companies in China sell homes even before they are constructed. Homebuyers, thus, have to begin repaying their loans before they get possession of their flats, apartments, or houses. The repayments are used as funds to finance construction. Any crack in the system affects the entire process.
Homebuyers started protesting at the beginning of 2022 after they realized that hundreds of real estate projects in China were delayed or stalled due to developers facing a cash crunch. Evergrande, one of the biggest real estate companies in China, defaulted on its debt in 2022.
Home prices, as a result, began to fall. Much of the investment was struck in semi-finished homes where construction was stalled for months, making these flats nearly worthless. Homebuyer’s thus refused to pay mortgages.
Homebuyers in nearly 50 Chinese cities across 18 provinces who had invested in these properties stopped repaying their loans. The government now wants to work closely with local government to ensure timely delivery of the unfinished projects to ensure that people start resuming payment of mortgages, wrote Giuliani for Insideover.
China Evergrande, the embattled Chinese property developer, recently, ousted its CEO and chief financial officer after authorities conducted an internal investigation into why the bank seized over USD two billion from the firm’s property services arm.
The resignations came as the Chinese property developer fights for its survival as it struggles to manage its crushing USD 300 billion in debt.
The executives were forced to resign from their posts over their involvement in a plan to funnel USD two billion into Evergrande’s coffers from one of its subsidiaries, The New York Post reported.