September 30, 2022

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Property crisis: China’s banking regulator extends loans as mortgage boycott grows

The China Banking and Insurance Regulatory Commission (CBIRC) reiterated Thursday that it will provide “active credit support” for property developers, so they can complete delayed or stalled projects as soon as possible.

It also urged banks to issue more mortgage loans to qualified homebuyers to support demand and prop up the property market.

Mortgages have increased after the People’s Bank of China cut mortgage rates by two-tenths of a percentage point in May for first-home buyers. Substantially all — 90% — of mortgage loans have been issued to first-home buyers.

“The current lending pace for property-related loans has reached the fastest pace since 2019,” said Liu Zhongrui, an official from the CBIRC, at a press conference on Thursday in Beijing.

Last month, new developer loans issued by banks also reached 52.2 billion yuan ($7.7 billion), Liu added.

China scrambles to defuse alarm over mortgage boycotts and banks runs
The pledge is the latest among a series of moves by Chinese authorities to appease a homebuyer revolt nationwide. A growing number of disgruntled homebuyers are refusing to pay mortgages on unfinished projects, aggravating the country’s real estate woes and raising concerns about a systemic financial crisis and social unrest.

The movement is a sign of how a liquidity crunch facing developers is spilling over to other aspects of the society.

The problem began in 2020, when Beijing started cracking down on excessive borrowing by developers in a bid to rein in their high debt and curb runaway housing prices. The crisis escalated last year when Evergrande — the nation’s most indebted developer — scrambled to raise cash to repay lenders. As the property sector cools off, several major companies are seeking protection from creditors. Many property projects across the country have been delayed or suspended due to developers’ cash crunch.
Public anger is growing over stalled projects, as many homebuyers had started repaying mortgages before they are in possession of the new property. In China, real estate firms are allowed to sell homes before completing them and use the funds to finance construction. It’s the most common way of selling houses in the industry.
Chinese homebuyers refuse to pay mortgages on unfinished apartments
The mortgage boycott could cause rising bad loans at banks and dampen the sentiment further in the property sector, according to analysts. If sales decline further, developers could face a bigger cash problem, which might lead to more debt defaults and project delays, creating a vicious cycle in the market. The property crisis will also place a major strain on the economy and financial system — real estate and related industries account for as much as 30% of China’s GDP.

Earlier this week, the central Chinese city of Zhengzhou set up a property developer bailout fund to address unfinished projects, one of the first bailout measures by local governments to tackle the mortgage boycott.

The fund will be jointly set up by Zhengzhou-based Henan Asset Management and Zhengzhou Real Estate Group, according to a statement by the asset manager on Tuesday. Zhengzhou is the capital city of central Henan province and currently at the center of the nationwide mortgage boycott.

Both companies are backed by local governments in the province.

The fund will be used to “revive problematic property projects and bail out struggling developers,” the statement said, without disclosing how big the fund would be.