In China, many homeowners stop paying their mortgages
Newly married, Mr. Wang wanted to move into their 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 the house, the 34-year-old future father took out a loan of the equivalent of 300,000 euros three years ago. 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‘ tells AFP Mr. Wang, who does not want to reveal 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 repay two million yuan (€300,000) for the loan.”
Only 60% of pre-sold homes are delivered
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. The difficulties facing Chinese real estate, which accounts for a quarter of the country’s GDP, only became apparent last year when Evergrande began struggling to repay its creditors.
Between 2013 and 2020, developers in China have so far delivered only about 60% of pre-sold homes, according to Nomura Bank. The task is made more difficult by these boycotts of monthly payments and by pressure from the government – concerned about social stability – to deliver apartments to buyers as quickly as possible. In Wuhan, other prospective owners tell AFP that the delivery date of their home has been pushed back multiple times by developer 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 it hopes to complete the site by the end of 2022. The zero Covid strategy did not help the situation.
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 hurt. This resulted in a realcrisis of confidencein the real estate market, estimates Andrew Batson, analyst at Gavekal Dragonomics, in a recent report.
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“I never thought this could happen” Mr. Hu, a 25-year-old buyer from Wuhan, tells AFP about 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 moreexplains 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. “This violates neither laws nor contracts. It’s just that this pressure puts us in an impossible situation.” His family made an initial payment of 800,000 yuan ($140,000). He also took out a loan of 600,000 yuan ($100,000).
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.
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 municipal finances – is worrying..”
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