Chinese mortgage owners boycott payments, spelling crashes for home lenders
Chinese homebuyers are refusing to pay their mortgages for the growing number of unfinished projects, fueling fears it could lead to further decline in the world’s already-beleaguered biggest real estate market.
China Real Estate Information reported Wednesday that about 100 projects in more than 50 cities are not receiving mortgage payments from landlords, nearly double from the previous day and four times from two days ago.
“The incident would weaken buyer sentiment, particularly for pre-sold products offered by private developers given the higher risk on delivery, and weigh on the gradual recovery of sales,” wrote analysts at Jefferies Financial Group, including Shujin Chen.
Landlords are boycotting growing delays in completing pre-sold properties. Between 2013 and 2020, only about 60% of pre-sold houses were delivered while outstanding mortgage loans increased by 26.3 trillion yuan.
“Presales carry increasing risks for developers, homebuyers, the financial system and the macroeconomy,” Nomura analysts including Ting Lu wrote.
The denials are part of the domino effect that has permeated the Chinese property market, starting with Evergrande’s default on its debt payments.
Home prices also fell for nine consecutive months in May, dropping an average of 15% from their numbers three years ago, according to Citigroup analysts. Falling property values are also seen as a contributing factor to payment boycotts.
“Investors are concerned about the spread of mortgage denials to buyers, simply due to the decline in property prices and the impact on property sales,” Chen added.
Mortgage denial fears are hitting developers who are already facing cash flow issues due to economic factors.
As a corollary, lenders are also feeling the effects of the real estate crisis which is sending the industry to its lowest index in two years. Mortgages are estimated to make up nearly 20% of banks’ loan portfolio.
With China’s real estate market arguably the largest asset class in the world, there are fears that the country’s real estate decline could reverberate around the world, if not already affecting the international market due to defaults. of bonds.
“We are particularly concerned about the financial impact of homebuyers’ ‘halt mortgage payments’ movement,” Ting added. “China’s housing slowdown may finally negatively affect onshore financial institutions after hitting the offshore high-yield dollar bond market.”
The country’s strict COVID policy does not help the situation; instead, it amplifies the reverberation effects of Beijing’s economy on the global market.
“[China’s lockdown] is already having a dramatic effect on the markets… It’s killing the supply chain, it’s significantly hurting the American business,” said Todd Horwitz, market analyst, CEO of Bubba Trading, in a Daily dive interview. “If you ask me…the more reason they’re closing is to bring more pain and more trouble here in the United States.”
Information for this briefing was found via Bloomberg and Zero Hedge. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.