Wednesday, August 10

China’s Mortgage Crisis Has Prompted The Largest Extension Of The Home-Ownership Application Process In Three Years.

China’s banking regulator is betrothed to increasing loans to fulfill developers’ unfinished construction projects and increase their demand, as an increasing number of buyers stop buying houses due to growing home-value estimates.

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. The regulator said previous efforts to boost property lending have been working; 90 percent of mortgage loans have been issued to first-home buyers.

“The current he reached for most property-related loans in 2019,” said Liu Zhongrui, an official from the Central Bank of China, at a press conference held in Beijing on Thursday. Last month, new developer loans had been issued at financial institutions, reaching 52.2 billion yuan ($7B).

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.

Frustration is mounting among home buyers who are forced to cover the mortgage loan before receiving their new property. In China, real estate sales are routinely conducted before the homes are finished and have long been a common way for companies to sell houses. It is the most common method of conducting real-estate sales in China.

A mortgage boycott in China could lead to a rise in 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 and might lead to more debt defaults and project delays. This would create 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; it will be jointly set up by Zhengzhou-based Henan Asset Management and Zhengzhou Real Estate Group.

The fund will be employed to aid “troubled property developers” who have “recent experience,” the statement said, without disclosing how much the funding would be.

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