MNI:China Eyes Plans On Unfinished Housing Units Amid Boycotts

China must shore up a collapse in buyer confidence that unfinished housing projects by struggling property developers may not get completed on time as boycotts on paying mortgages spread across the country, adding more pressure on the still bleak real estate sector, according to analysts.

The country’s top banking regulator has stepped up efforts to encourage lenders to extend loans to qualified developers to help them complete stalled projects after a wave of disgruntled homebuyers vowed to stop making mortgage payments starting in July covering over 200 unfinished projects in about 80 cities, according to a report by Yan Yuejin, director of E-house China Research and Development Institution.

But more than 10 banks, including six major state-owned, all said last week that the scale of mortgage loans involved is small, with the risks controllable. Yan estimated mortgage loans involving unfinished buildings nationwide in the first half of 2022 are CNY900 billion, which accounts for 1.7% of the national housing loan balance. (See: MNI: Some China Developers Desperate As Debt Peak Looms)

NEXT STEPS

Still, to comfort angry homebuyers, it is reported by Bloomberg that regulators may allow a temporary halt to mortgage payments on stalled property projects without incurring penalties on credit scores, with the length of grace periods decided by local governments and banks.

Yan said the policy priority for H2 will shift to ensuring housing project delivery, from stimulating land acquisitions and home sales. Measures will include strengthening the management of pre-sale funds, increasing penalties for defaulting developers, and providing greater support for property development loans.

Zhengzhou city in central China is facing the most threats to boycott mortgage payments and has responded, according to reports, by setting up a bailout fund to help cash-strapped developers complete housing projects, which marks the first state-backed bailout proposal in China.

Some analysts however believe allowing these homebuyers to default can quickly restore market confidence. Otherwise, it will affect sales of housing under construction, which is an important funding source for beleaguered developers.

There are also worries any forbearance on mortgage loans could encourage a wider boycott at a time of falling home prices. Home sales still declined 22.2% y/y in H1, narrowing from the 23.6% fall in the first five months. (See: MNI STATE OF PLAY: China 5-Yr LPR Eyed As Policy Turns Cautious).

CONFIDENCE FRAGILE

China’s household sector is facing rare pressures into the third year of the Covid-19 pandemic as the country grapples with lockdowns and a related economic slowdown that has caused havoc on incomes and job security.

Rebounds in residential incomes and employment have been weaker after successive pandemic peaks have passed, said Wu Ge, a former official at the central bank and now chief economist of Changjiang Securities in his WeChat blog post, pointing to the record-high unemployment rate in 31 large cities and among recent graduates in Q2, as well as the record-low month-on-month income growth.

The sustainability of income and mortgage repayments has become a worry for potential homebuyers, outweighing stimulus measures such as lower mortgage rates, said Wu, who expects home sales may turn positive in end-Q4 instead of an earlier expectation of Q3 by other analysts.