Homebuyers Boycott Mortgage Payments on Stalled Housing Projects

Over the past few weeks, tens of thousands of Chinese homebuyers have banded together and refused to continue paying mortgages on unfinished homes. Homebuyers in China frequently purchase “pre-sale” homes long before developers have completed them, with mortgage funds then used to finance their construction. But with a growing number of residential property projects delayed or stalled amid a growing real estate crisis, homebuyers have used their leverage to avoid paying mortgages on homes they may never occupy, or that may have plummeted in value. Cissy Zhou from Nikkei Asia reported on the background and significance of the payment boycott:

Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished residential projects, ANZ said in a report.

The movement kicked off in late June among people who bought into an Evergrande project in southeastern Jingdezhen city. It has since spread to other parts of the country with about one-third of the unfinished projects built by struggling Evergrande, once China’s top developer.

“If tens of thousands of homebuyers really stop paying their mortgage, the real estate companies will soon collapse because they have no liquidity,” Dan Wang, chief economist at Hang Seng Bank China, told Nikkei Asia. “There are huge risks for banks, particularly local banks, whose assets are mainly in the housing market, and there is no way that the central bank could save all of them,” she added. [Source]

Braving the risk of incurring bad credit, many homebuyers remained defiant in their boycott. In one online homebuyers’ group, after someone expressed concern about how ceasing to make payments might affect their credit score, another responded, “If you can’t even afford to eat, do you really care about your credit score?” The homeowners of one real-estate project in Zhengzhou declared in a unanimous statement, “At a time when we are desperate and fighting for survival, a credit score is just a paper tiger to us, a pair of shackles that can be discarded at any time. This is the helpless cry of millions of ordinary citizens like us.”

Some on social media have taken to using “Camel” Xiangzi, the aspirational but ill-fated protagonist of Lao She’s 1937 serialized novel “Rickshaw Boy,” as a stand-in for duped and frustrated homebuyers. A now-deleted WeChat article (“Xiangzi Decided to Stop Pulling the Rickshaw,” archived by CDT Chinese editors) included a poignant comment posted below a Douyin video filmed by a young couple in Zhengzhou, whose joy at purchasing a home had turned to anxiety about shouldering an expensive mortgage on a stalled housing project. The comment, which resonated with many social media users, read: “Xiangzi thought that if only he worked hard at pulling the rickshaw, someday he could own a rickshaw of his very own.”

Rebecca Feng and Cao Li from The Wall Street Journal described how many homebuyers feel that, in order to avert personal financial ruin, they have no choice but to boycott mortgage payments:

Homeowners who stop paying their mortgages risk being dinged in China’s credit scoring system, which could make it difficult for them to get future loans. Knowing that risk, some people may still choose to default, analysts said.

“Many people who are involved in the movement are from lower-tiered cities. These people have put down their entire life savings to buy homes…they need reassurance that the homes will be completed. Otherwise, why would they not just ‘lie flat’?” said Zerlina Zeng, an analyst at debt-research firm CreditSights. [Source]

Cognizant of the threat of expanding social and financial unrest, the government has attempted to silence talk of mortgage boycotts and prevent homeowners from organizing online. As Bloomberg reported, Chinese censors have been deleting online discussions and documents related to the mortgage boycotts

Shared files managed on platforms including China’s Quora-equivalent Zhihu Inc. and on sites like Kdocs and Wolai have been banned following reports that the number of homebuyers refusing to pay mortgages surged in a span of days. GitHub, a popular file-sharing site for coders, remains as a source for people to post documents.

[…] Information shared on the platforms included names of projects that were stalled, and images of letters from homebuyers declaring that they refused to pay. GitHub’s page on the topic was starred, or bookmarked, by more than 14,000 users.

Homebuyers complained that their social media accounts on TikTok’s Chinese cousin Douyin and the Twitter-like Weibo have also been banned. Some buyers who asked not to be named said they were contacted by police. 

Posts on WeChat and Weibo containing snapshots of charts tallying mortgage boycotts or project delays were deleted. Among them was a July 13 analysis by property researcher China Real Estate Information Corp. which showed homebuyers stopped mortgage payments on at least 100 projects in more than 50 cities. [Source]

Chinese homebuyers are losing confidence in a housing market that has deteriorated over the past few years. Housing sales have plummeted in the wake of COVID lockdowns and rising unemployment, and investors are wary of financially troubled property developers. Dozens of developers have defaulted, including Evergrande, whose $300 billion of debt has reverberated throughout the economy following the company’s collapse last year. S&P Global Ratings recently predicted that at least one fifth of all rated Chinese developers may eventually become insolvent, putting $88 billion of their distressed bonds at risk. 

The scale of the problem has pressured the government to intervene. Thus far, the boycott has affected projects in over 50 cities and potentially threatens two trillion yuan ($296 billion) in mortgages at stalled projects. China’s property sector accounts for as much as one quarter of the country’s economy, and numerous state banks are exposed to mortgage lending. Over the weekend, as Reuters reported, Chinese regulators encouraged banks to give loans to qualified real estate projects

The China Banking and Insurance Regulatory Commission (CBIRC) told the official industry newspaper on Sunday that banks should meet developers’ financing needs where reasonable.

[…] The rebound in Chinese banking stocks was also aided by news that China will accelerate the issuance of special local government bonds to help supplement the capital of small banks, part of efforts to reduce risks in the sector.

China may also allow homeowners to temporarily halt mortgage payments on stalled property projects without incurring penalties, Bloomberg reported after the market close on Monday, citing people familiar with the matter.

[…] In the Sunday interview, CBIRC urged banks to “shoulder social responsibility” and actively participate in the study of plans to fill the funding gap and support acquisitions of real estate projects. [Source]

In another intervention, the government is reportedly set to allow homebuyers to temporarily halt mortgage payments on stalled residential construction projects. The measure would boost confidence in the market, but it risks backfiring if additional homebuyers are encouraged to suspend their mortgage payments, or if buyers of completed homes begin clamoring for relief from the steady drop in home prices

Translation by Cindy Carter.


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