China’s banking regulator has urged lenders to extend more credit to real estate developers, as a growing number of homebuyers withhold mortgage payments on unfinished housing projects across 50 cities.

China banking renminbi RMB money
Photo: Mussi Katz, via Flickr.

Furious at postponed deliveries of pre-sold homes, unclear delivery times and halted construction, homebuyers were last week reported to have halted payments for already sold units in at least 100 residential projects, according to data from industry groups and analysts.

The boycott has worsened fears of financial contagion in the country’s troubled real estate sector, which is estimated to account for 18-30 percent of GDP and is a key driver of growth in the world’s second-largest economy.

Analysts have called it a “vicious cycle” that would further dampen consumer confidence, following last week’s dismal Q2 growth figures that were the worst since the pandemic began.

China’s Banking and Regulatory Insurance Commission urged banks to “effectively meet the reasonable financing needs of real estate companies, vigorously support rental housing construction” and support project mergers and acquisitions, a representative said in a state media interview published Sunday.

They were also asked to “do a good job in customer service… abide by contracts, fulfill commitments, and protect the legitimate rights and interests of financial consumers”.

These measures were required to “maintain the stable and orderly operation of the real estate market”, the unnamed official said.

Authorities launched a crackdown on excessive debt in the property sector in 2020, leaving giants like Evergrande and Sunac struggling to make payments and forcing them to renegotiate with creditors as they teetered on the edge of bankruptcy.

‘Vicious cycle’

“The recent mortgage boycott revealed the spillover in the property sector rout from the bond defaults to unfinished real estate projects,” said Ken Cheung, chief Asian FX strategist at Japanese bank Mizuho.

“This forms a vicious cycle in the property sector. With falling confidence on the property sector outlook, home buyers delay their purchases and property prices drop.”

Regulators met banks last week to discuss the growing consumer mortgage boycott, Bloomberg News reported, as more major Chinese developers teeter on the brink of default.

The developments come at a time of slowing growth for China and weak property sales, adding to the risk to stability ahead of the Communist Party’s 20th Congress in the autumn, when President Xi Jinping is expected to be given a third term.

“Deposits and advance payments for real estate development enterprises fell by 37.9 percent year-on-year in the first half of 2022,” Rajiv Biswas, Asia-Pacific chief economist at S&P Global Market Intelligence, told AFP.

He warned that the weaker property sector outlook would “add to the downside risks facing China’s economy”.

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