The real estate market China It is one of the most affected by the Covid-19 pandemic. An example of this is that of Evergrande, one of the largest promoters in the countrywhich has been failing to meet its payment obligations for months, a phenomenon that is being controlled by the Chinese authorities, to avoid the contagion effect in the rest of the sector.
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But now a new consequence of the delays in the construction of houses has appeared. And it is that thousands of Chinese who decided to build a home are stopping paying mortgage loans to the ongoing delays they have been experiencing for some time in the completion of their houses.
The ‘boycott’ is happening in more than 200 real estate projects throughout the country, while regulators are trying to contain the contagion effect that would aggravate the outlook for the sector, which is already hit by the crisis. So far, 30 real estate companies have confirmed defaults, according to Goldman Sachs.
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The CSI 300 Banks index it fell to 3.3% last Thursday on the news. The China Securities Commission asked banks to disclose the extent of their mortgage exposure.
€414 million in vulnerable loans
In total, 16 banks, including state lenders, said they have 2.8 billion yuan (about 414 million euros) in vulnerable loans. However, the banks pointed out that these loans represent less than 0.01% of mortgage obligations for most of them.
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The Agricultural Bank of Chinastate-owned, for example, published that it had 660 million yuan (about 97 million euros) in loans on unfinished homes, the highest among the banks that disclosed their data. Industrial Bank holds 384 million yuan (56.3 million) in mortgages on unfinished houses, while Ping An Bank revealed 318 million yuan (46.6 million) in debt.
“Mortgage default is a desperate move by these buyers to draw the attention of banks and promoters”, explained Wang Qi, CEO of the fund manager MegaTrust Investment in Hong Kong.
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“The biggest challenge for the Chinese real estate sector is consumer confidence. Recent mortgage defaults have only added to the problem,” Wang added.The government needs to repair consumer confidence and of the companies as soon as possible with more stimuli”.
The banking regulator believes it would intensify coordination with the central bank and housing regulator so that local governments can complete pending real estate developments.
“You can get something positive out of this, such a movement will lead the banks to negotiate with the developers in debt to resume construction,” commented the Jefferies analysts. “However, investors are concerned about the spread of these mortgage defaults, simply because property prices will remain low and the impact on home sales will further erode developers’ and builders’ cash flow. ”.
Experts believe that the Chinese authorities will take measures to avoid systemic risks for the financial sector or the economy in general. Possible solutions include guidelines for banks to support unfinished residential projectsgrant longer grace periods for mortgage payments or waive mortgage interest.
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