That was one of the cries that disaffected apartment buyers in China used at a protest in June. But their anger over the unfinished properties didn’t stop with gestures and chants. Hundreds of them stopped paying their mortgage installments – a radical step towards Chinawhere dissent is not tolerated.
A young couple who moved to Zhengzhou in central China told the BBC that after receiving the advance last year, the construction company backed out of the project and construction stopped.
“I have imagined countless times the joy of living in a new house, but now it all seems ridiculous,” said the woman, who declined to be named.
- Why is the world worried about the housing crisis in China?
Another woman in her early 20s, who also bought a house in Zhengzhou, told the BBC she was ready to stop paying the mortgage: “Once the project is fully resumed, I will continue to pay.”
Many of them can afford it but are choosing to stop, unlike the subprime mortgage crisis in the US in 2007, when the money was lent to people who were later unable to pay off debt.
In China, these people bought homes in about 320 projects across the country, according to a crowdsourced estimate on Github, where homeowners have been posting about the decision to stop paying. But it’s unclear how many actually stopped.
The boycotted loans could total US$145 billion, according to an estimate by S&P Global. Other analysts say the number could be even higher.
The revolt has shaken officials, who have turned their attention to a market already under pressure from a slowing economy and a serious financial crisis. More alarmingly, it signaled a lack of confidence in one of the main pillars of the world’s second-largest economy.
“Mortgage boycotts, driven by deteriorating property sentiment, are … a very serious threat to the sector’s financial position,” Oxford Economics, a think tank, said in a recently released note.
Why is China’s housing crisis worrying?
China’s real estate sector accounts for a third of the country’s economic output. This includes housing, rental and brokerage services, as well as industries that produce white goods that go into apartments and building materials.
But China’s economy has been slowing – in the last quarter it grew by just 0.4% from a year earlier. Some economists expect stagnation this year. This is largely due to Beijing’s Covid-zero strategy – constant lockdowns and isolation restrictions have taken a toll on income and, in turn, savings and investments.
The size of China’s economy means that a crisis in a crucial market – such as real estate – could affect the global financial system. Experts believe contagion is the current concern – banks will not lend if they believe the sector is sinking.
“It all depends on the policy,” says Ding Shuang, head of Greater China economic research at Standard Chartered. “Unlike other parts of the world where housing bubbles are bursting because of the markets, here it’s because of the government.”
Thirty real estate companies have already missed the payment of the foreign debt. Evergrande, which defaulted last year on its debt of US$ 300 billion (R$ 1.5 trillion), is the most prominent. S&P has warned that if sales don’t pick up, more companies could follow suit.
Demand for housing is also not growing as China is undergoing a demographic shift, with urbanization and population growth slowing.
“The bottom line is that we’ve reached a turning point in the real estate market in China,” says Julian Evans-Pritchard, senior economist at Capital Economics in the country.
How did we get to this point?
Real estate accounts for about 70% of personal wealth in China – and homebuyers often pay upfront for unfinished projects.
These “presales” account for 70% to 80% of new home sales in China, Evans-Pritchard said, adding that homebuilders need the money because they use it to finance multiple projects at once.
But many young and middle-class Chinese are no longer investing in real estate, likely because of a sluggish economy, job losses and pay cuts — and now out of fear that builders won’t complete projects.
“That’s just part of the problem — the builders were counting on new money coming in, and these new sales aren’t happening anymore,” Evans-Pritchard said.
More than $220 billion in loans could be tied to unfinished projects, according to banking group ANZ. And credit – an important source of cash in the boom years – has also dried up.
In 2020, China’s government introduced the “three red lines” – which are accounting measures to limit how much homebuilders could borrow. This cut off funding and the subsequent lack of confidence in the market also affected banks’ willingness to lend to real estate companies.
What is the government doing?
On the one hand, Beijing is putting the onus on local governments – they are offering reduced loans, tax breaks and cash subsidies to homebuyers and relief funds to homebuilders. But that comes at a cost because local coffers will be hit as developers buy less land.
“I think this is the time for the central government and regulators to step in,” Ding said. “At some point he will intervene to isolate the problem of some companies and avoid contagion. The sector is very important for the economy.”
The Financial Times recently reported that China has issued $148 billion in loans to help the real estate sector, and Bloomberg reported that mortgage holders can receive a payment without affecting their credit scores.
But in a recent note, Oxford Economics said that any government intervention in real estate and infrastructure could provide a short-term boost, but that it “is not ideal for China’s long-term growth as the government and financial sector are being forced to help sustain an unproductive (and bankrupt) real estate sector”.
This is not just a financial crisis. The mortgage boycott is in danger of becoming a serious social problem, Ding said.
And that could become a problem for President Xi Jinping ahead of a crucial party congress later this year, where he is expected to seek a historic third term.
Analysts say the potential bailout – worth $148 billion – may not be enough. Capital Economics estimates that companies need $444 billion just to complete stalled projects.
It is also unclear whether banks – especially smaller rural ones – can absorb the cost of the mortgage strike.
Even if construction restarts, many homebuilders may not survive because home sales are unlikely to sustain the loss. Sales at China’s 100 largest developers dropped 39.7% in July compared to the same period last year, according to China Real Estate Information Corp. (CRIC).
This crisis is the clearest indication that China’s economy is at a crossroads.
“The government is doing its best to find new sources of growth, but that will be challenging because the economy has been heavily dependent for the last three decades on property, infrastructure investment and exports,” said Evans-Pritchard.
“The era of very fast growth in China is probably over… and that’s most obvious in real estate right now.”
Additional reporting by BBC Beijing.