China’s real estate sector has a debt problem. Large property developers like the embattled company Evergrande have racked up massive amounts of debt, leading to construction stoppages and lots of angry homebuyers.
Amid the turmoil, buyers across China have banded together and threatened to stop paying mortgages on over three hundred unfinished housing projects. Hundreds of thousands of homebuyers have begun a mortgage boycott, refusing to pay their mortgage for unfinished or stalled housing projects.
As of previous month, homebuyers in 80 cities and 200 projects had threatened to stop mortgage payments. Home sales have collapsed by nearly 60% compared to a year ago, and the current constant decline of sales (11 months) is pegged to be the worst in China’s history. Analysts expect property sales to have dropped 25% from January to June, amidst China’s Zero Covid Cases strategy. Numerous developments in China have halted as property developers have run out of capital to finish construction.
Across China, real estate developers are getting desperate – attempting to sell homes by whatever means possible, even going as far as accepting down-payments in wheat, garlic, watermelons and peaches to cater to farmers.
The real estate industry has an oversized impact on the economy. When related sectors like construction and property services are included, real estate accounts for more than a quarter of Chinese economic output, by some estimates. About 70 per cent of household wealth is stored in property, along with 30-40 per cent of bank loan books, while land sales account for 30-40 per cent of local government revenues, according to sources. The worsening crisis will test authorities’ ability to minimise the fallout. In case the situation is not being handled strategically by Chinese authority, then the consequences of such crises may spread all across asia and globe as well.