Chinese Homebuyers halt Loan Repayment

Unhappy Chinese purchasers are refusing to pay mortgages for incomplete building projects in an alarmingly large amount, worsening the country's real estate problems and fueling concerns that the crisis could extend to the larger financial system.

According to the researcher China Real Estate Information Corp., as of Wednesday, mortgage payments have been halted on at least 100 projects in more than 50 locations. According to experts at Jefferies Financial Group Inc., including Shujin Chen, that is an increase from the 58 projects on Tuesday and the 28 projects on Monday.

In a memo made public on Thursday, Chen stated that "the names on the list quadrupled every day in the preceding three days." Given the heightened risk of delivery, the occurrence "would weaken consumer sentiment, especially for pre-sold items supplied by private developers, and impact on the steady sales rebound."

According to Jefferies, the postponed projects account for 1% of China's overall mortgage amount. According to Chen, if every buyer defaulted, there would be a rise in non-performing loans of 388 billion yuan ($58 billion). There was no estimate of the number of purchasers skipping payments in the study.

During trading hours on Thursday, some significant Chinese banks sprang into action as the CSI 300 Banks Index dropped as much as 3.3%. While smaller rival Industrial Bank Co. reported 1.6 billion yuan of mortgages were affected, of which 384 million yuan had turned delinquent, state-owned Agricultural Bank of China Ltd. reported holding 660 million yuan in past-due loans on unfinished homes. The biggest mortgage lender in the country, China Construction Bank Corp., claimed that while its exposure to postponed projects is minimal, total risks are manageable.

The payment refusals highlight how the crisis enveloping China's real estate industry is now presenting a danger to social stability ahead of a Communist Party Congress later this year for hundreds of thousands of ordinary residents. Chinese banks must now prepare for homeowner defaults on top of the difficulties they are currently facing from developer liquidity crisis.

According to analysts, a decline in property prices might also be a factor in people's failure to make their mortgage payments. Because of the decline in home values, Chen stated, "Investors are worried about the spread of mortgage payment snubs to purchasers and the impact on property sales."

it looks like the growing non-performing loans for Chinese banks are manageable, there are more risks to come following the Chinese economic drop and slow recovery growth. Currently, residents are expecting more harsh times than good, and this will greatly affect property sales in the short and long run.

“Overall, we are worried about the financial effect on homebuyers. The long-term worry is that the purchase of property will have a negative effect on home based and foreign based companies with tie-ins to the property market,” Chen said.

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