Real estate: In China, construction sites are at a standstill and buyers are at an end
AFP, published on Friday, August 12, 2022 at 07:29
Newly married, Mr. Wang was about to move into his new home with his pregnant wife. But the dream turns into a nightmare with the housing crisis in China, preventing certain promoters from completing the work.
In order to buy his own home three years ago, the 34-year-old father-to-be took out a loan for the equivalent of 300,000 euros. But without progress on the site for almost a year, he made a radical decision: to stop paying monthly installments.
Like him, shoppers in dozens of cities are boycotting refunds to put pressure on promoters … who are themselves paralyzed with debt and lack of funds.
“They told me that construction would resume soon,” said Mr. Wang, who declined to give his full name. “But in the end no worker came.”
As a Beijing resident, he intended to move into this apartment he bought in Wuhan, a large city in central China.
“It was difficult for us to afford this apartment. I put all my life savings into it,” he explains. “In the end, we still have to pay back two million yuan (300,000 euros) for the loan.”
China has seen a boom in the industry since the real estate market was liberalized in 1998.
Developers were able to expand thanks to bank loans. But their debt has grown so much that the authorities have decided to put a stop to it starting in 2020.
This has reduced financing options for property giants like former No. 1 Evergrande, which have been struggling to pay off mountains of debt for months.
– “Impossible situation” –
The task is made more difficult by this boycott of the monthly installments and by the pressure from the government, concerned about social stability, to hand over the apartments to the buyers as quickly as possible.
In Wuhan, other prospective owners are telling AFP that their home’s delivery date has been pushed back multiple times by promoter Myhome Real Estate.
They should move in at the end of 2021, but don’t see anything coming yet. The manufacturer promised this week that the site would be ready by the end of 2022.
In China, new homes are usually sold before they are built. So when a developer can’t complete the work, it’s the buyer who feels offended.
This has led to a veritable “crisis of confidence” in the real estate market, estimates Andrew Batson, an analyst at Gavekal Dragonomics, in a recent report.
“I never thought this could happen,” Mr. Hu, a 25-year-old buyer from Wuhan, told AFP of his unfinished house.
He explains that his whole family financed the purchase of his three-room apartment in 2018.
“I don’t want to pay more,” said Mr. Xue, another buyer. Unable to return to his apartment, the 24-year-old young man rents an apartment whose rent is a heavy burden on his finances.
“It’s not about disregarding laws or treaties. It’s just that this pressure puts us in an impossible situation.”
– vicious circle –
His family delivered an initial payment of 800,000 yuan. He also took out a 600,000 yuan loan.
Protests by angry landlords have taken place in the city, according to several Wuhan buyers.
In total, more than 300 real estate projects in about 100 cities are affected by these payment boycotts, according to a joint document published online under the title “WeNeedHome”.
Many are in Zhengzhou, a large city in central China, but authorities have set up a fund to help developers complete the work.
Between 2013 and 2020, developers in China have so far delivered only around 60% of pre-sold homes, according to Nomura Bank.
The difficulties of China’s real estate market, which accounts for a quarter of the country’s GDP, became apparent last year as Evergrande began struggling to repay its creditors.
Now the Chinese’ loss of confidence in the sector could exacerbate the crisis, warns Tommy Wu, an analyst at Oxford Economics.
“The risk of a vicious circle developing – declining home sales and prices, growing distress among property developers and deteriorating local government finances – is worrying.”