Chinese homebuyers halt mortgage payments on unfinished projects

Chinese homebuyers in dozens of cities have stopped making mortgage payments for unfinished projects, according to data from industry groups, worsening fears of financial contagion in the country's troubled real estate sector.

Authorities launched a crackdown on excessive debt in the property sector in 2020, and giants such as Evergrande and Sunac have since struggled to make payments and renegotiate with creditors.

In the latest blow, a growing number of homebuyers have refused to make mortgage payments if developers do not resume construction on units already sold.

As of Wednesday, homebuyers had halted payments for units in at least 100 residential property projects in 50 cities, according to data from research firm China Real Estate Information Corporation (CRIC).

This was up from 28 projects on Monday and 58 on Tuesday, according to a report by analysts at financial firm Jefferies.

Read also

Delta results show strong demand but also cost pressures

"The names on the list doubled every day in the past three days," they said.

These include projects that have experienced significant delays and others that have yet to reach their delivery date, the report said, adding that the incident will dampen buyer sentiment and weigh on a recovery in sales.

If every homebuyer defaulted, non-performing loans will increase by 388 billion yuan ($58 billion), Jefferies said.

The buyers' actions came after postponed deliveries of pre-sold homes, unclear delivery times and halted construction, Nomura analysts said in a report on Thursday.

"Pre-sales are the most common way of selling homes in China, so the stakes there are high," it said.

"We are especially concerned about the financial impact of the homebuyers' 'stopping mortgage repayments' movement, as China's property downturn may finally adversely affect onshore financial institutions."

Read also

Supply risks still haunt market despite high oil prices: IEA

The developments come at a time of slowing growth for China and weak property sales, adding to the risk to stability ahead of the Communist Party's 20th Congress this fall, when President Xi Jinping is expected to be given another term.

Source: AFP