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China’s mortgage boycotts: Why hundreds of thous...

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China’s mortgage boycotts: Why hundreds of thousands of people are saying they won’t pay

Started by upamfva, 2022/12/28 10:33PM
Latest post: 2022/12/28 10:33PM, Views: 116, Posts: 1
China’s mortgage boycotts: Why hundreds of thousands of people are s...
#1   2022/12/28 10:33PM
China’s mortgage boycotts: Why hundreds of thousands of people are saying they won’t pay

This summer, hundreds of thousands of Chinese people have sent angry messages to developers, banks and local governments that have reverberated in Beijing’s halls of power. “You stop construction, I stop paying my mortgage,” says one letter, sent on behalf of 7,200 households that bought deeds in the same property development in Chongqing. “You hand over the apartment, I start paying.”To get more latest news in china economy, you can visit shine news official website.

Similar threats have been made — and in some cases carried out — across 328 property developments in nearly 100 cities. Some of the messages have appeared briefly on Chinese social media platforms before being scrubbed by censors. But their echoes remain — the letters have been preserved on a crowdsourced website titled WeNeedHome — as does the fury. The mortgage boycotts are posing a fresh challenge for the government in a country where widespread dissent is uncommon and other economic troubles loom large.
What has prompted so many people to speak out? The short answer is that construction has stalled at apartment complexes across the country — apartments that have eaten up many people’s life savings. The long answer traces to deep-seated problems in China’s real estate sector that have been brewing for decades and laid bare over the past two years.

China’s property boom has been a huge driver of the country’s economic growth — the sector is responsible for around one-quarter of GDP. But now a pair of factors has brought developers to their knees: China’s economic headwinds — due primarily to its strict “zero-covid” policy that has locked down entire cities — and a government effort to rein in the real estate industry’s soaring debt.“We are in the midst of a slow-motion crisis,” Logan Wright, a partner at Rhodium Group who leads the firm’s China markets research, told Grid. “I would view the property sector’s distress as absolutely central to China’s current economic slowdown.”

That “slow-motion crisis” has many roots. To some extent, it was planned: The government explicitly wanted to cool down the red-hot property sector.

For years, apartment buildings shot up across China as people moved from the countryside to cities and developers had easy access to credit. But it soon became clear that real estate investors — not actual homebuyers — were the ones driving up demand in a speculative frenzy that left vast expanses of apartments empty. Property prices soared, and homeownership became increasingly unaffordable for China’s middle class. At the same time, another problem was brewing: The developers who were benefiting from those high prices amassed a mountain of debt to keep building at a breakneck pace.

“They’ve taken on too many loans to build too many buildings that no one really wants to live in,” Jeremy Wallace, an associate professor at Cornell University who has studied urbanization in China, told Grid.

In recent years, government officials have begun to see the underbelly of risk in that property-fueled economic growth model. President Xi Jinping has taken to repeating the exhortation that “houses are built to be inhabited, not for speculation.”In August 2020, the Chinese government decided to intervene to deflate the housing bubble before it burst. The housing ministry and the People’s Bank of China announced a “three red lines” policy, laying out three benchmarks to evaluate the level of debt developers had taken on. If regulators found that a developer had exceeded any of the benchmarks, they would place limits on the developer’s ability to borrow further.

It turned out that many of China’s biggest developers had blown past the thresholds — and all of them now had to start rebalancing their lopsided balance sheets. That left these companies short on cash needed to complete the apartments they’d promised to people all over the country.In the wake of the “three red lines” policy, China appeared to come close to its own Lehman Brothers moment last year. As in, a moment when one company’s troubles nearly cratered the country’s economy.

Evergrande is the poster child for China’s real estate craze. It’s a privately owned company that became China’s largest real estate developer, and as it grew, it took on an enormous amount of debt: more than $300 billion as of last year. Even before the three red lines policy, Evergrande was facing pressure as China’s economic growth slowed, cooling demand for the company’s often lavish properties. But the new policy pushed it over the edge.

Because it could no longer borrow as easily under the new government rules, Evergrande had to begin rapidly selling off pieces of its diverse business empire. But it still couldn’t keep up with its debt payment schedule.

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