In events which are reminiscent of what happened in America in 2007-08, millions of Chinese homebuyers are refusing to make the monthly instalment payments on their mortgages. The piece in Bloomberg is studded with useful graphics on the scale of the problem: “A wave of disgruntled homebuyers are refusing to pay mortgages for unfinished or stalled housing projects, as debt-strapped property developers run out of cash. Payments have stopped on at least 100 projects in more than 50 cities, according to researcher China Real Estate Information Corp. Analysts believe that a drop in home values may be another driver for the refusal to meet payments.”
Basis the chart shown in the Bloomberg chart, it looks like the entire southern and eastern part of China i.e. the economically productive part of the country has been engulfed by this boycott. 2 trillion yuan out of the 46 trillion yuan of mortgages outstanding in China have been impacted by the boycott says Bloomberg implying that a big chunk of the developers’ networth could be eroded if the boycott sustains. All of this comes at a bad time for Chinese developers: “Property prices have plunged and a domino line of developers have defaulted on their bonds. China’s financial system is sitting on 46 trillion yuan ($6.8 trillion) of outstanding mortgages and still has 13 trillion yuan of loans to the country’s beleaguered developers. The market has shown little sign of recovery depsite some cities loosening restrictions on home purchases and the central bank cutting mortgage rates in May.”
So what are the Chinese authorities doing about this? ‘Not much’ seems to be the short answer: “China’s banking regulator has asked lenders to offer credit to eligible property developers so they can complete unfinished residential projects. The regulator also reportedly asked banks to support mergers and acquisitions by developers to help stabilize the market, and to improve communications with home buyers and protect their legal rights. China may also allow homeowners to temporarily halt mortgage payments without incurring penalties, sources told Bloomberg News.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.
Get weekly insights on our investment strategies and more...