China's next big worry: A mortgage crisis knocking on its doors
India Today
Property giant China Evergrand, in a letter to local authorities in 2020, had said that the cash crunch could lead to huge financial and social risks. It had mentioned that two million buyers might protest over their 600,000-odd unfinished apartments in the coming years. And this is what has started happening now.
China's property sector is causing worry in economic circles as homebuyers of around 100 projects across 50 cities have decided to stop paying mortgages for unfinished homes after prolonged construction suspension.
The homebuyers are protesting developers’ failure to meet construction schedules and are demanding they resume construction and deliver projects on time, as per a report by Chinese media Caixin.
China's economy has already recorded its lowest quarterly growth in over two years, following the impact of continued harsh Covid lockdowns under the country's zero-Covid policy. As per the National Bureau of Statistics (NBS), the GDP expanded by just 0.4% in the three months to June 30 as compared to the same period in 2021.
Why have homebuyers stopped repaying loans?
New homes in China's property sector get sold almost always before they are built. But when heavily indebted developers run out of cash, homebuyers are left with nothing but a debt obligation. Property giant China Evergrand, in a letter to local authorities in 2020, had said that the cash crunch could lead to huge financial and social risks. It had mentioned that two million buyers might protest over their 600,000-odd unfinished apartments in the coming years. And this is what has started happening now.
What can be the impact of protests?
The protest by the homebuyers extends the risk of defaults from offshore developer bonds to banks with $6 trillion of home loans. President Xi Jinping has been making efforts to deleverage the property sector, but the emergence of the financial risk of investment in properties moving beyond three standard deviations is pushing the country into a tight spot.
