Social Discontent Grows in China – Many Homeowners Stop Paying Their Home Loans.

A way to put pressure on real estate developers, but it risks aggravating the real estate crisis in China.

Examples are multiplying in China.

Mr. Wang, a young married man, was getting ready to move into their new apartment with his pregnant wife. But the dream turns into a nightmare with the real estate crisis in China which prevents some developers from completing the work. To buy the apartment, three years ago, the 34-year-old father-to-be took out a loan equivalent to $300,000. But with no progress in the construction for almost a year, he took a radical decision: stop the monthly payments.

Like him, buyers in dozens of cities are boycotting payments to put pressure on developers ... who are themselves saddled with debt and cash flow problems.

“They told me that construction would resume soon,” Mr. Wang, who does not wish to reveal his full name, tells AFP. “But in the end, no workers came.” A resident of Beijing, he was planning to move to the home he bought in Wuhan, a large city in central China.

“It was difficult for us to afford this apartment. I put all my savings into it,” he explains. “In the end, we still have to pay back two million yuan ($300,000) for the loan.”

Only 60% of pre-sold homes delivered

Since the liberalization of the real estate market in 1998, China has experienced a boom in the sector. Developers have been able to expand thanks to bank loans. But their debts swelled so much that the authorities decided to put a stop to them in 2020.

This has reduced the financing possibilities for real estate giants such as the former number one Evergrande, which has been struggling for several months to pay off mountains of debt. The difficulties of China's real estate industry, which accounts for a quarter of China's GDP, were revealed last year when Evergrande began to struggle to repay its creditors. Many began to fear a Chinese Lehman Brothers with Evergrande.

According to Nomura Bank, developers in China have so far only delivered about 60% of the homes pre-sold between 2013 and 2020.

The task is complicated by these monthly payment boycotts and by pressure from the government - concerned about social stability - to deliver apartments to buyers as soon as possible. In Wuhan, other future owners tell AFP that the delivery date of their housing has been postponed several times by the developer Myhome Real Estate. They were supposed to move in at the end of 2021 but still see nothing coming. The builder promised this week that he hoped to complete the site by the end of 2022. Covid's zero-strategy has not helped the situation.

In China, new apartments are most often sold before they are built. So when a developer is unable to complete the work, the buyer is the one who gets hurt. This has led to a real “crisis of confidence” in the real estate market, says Andrew Batson, an analyst with Gavekal Dragonomics, in a recent report.

Social discontent rising in China, which worries the CCP

“I never thought this could happen,” Mr. Hu, a 25-year-old buyer from Wuhan, tells AFP of his still-unfinished home. He explains that his entire family paid to finance the 2018 purchase of his three-room apartment. “I don't feel like paying anymore,” said Mr. Xue, another buyer.

Unable to move back into his home, the 24-year-old rents an apartment whose rent weighs heavily on his finances. “It's not that we despise the law or the contracts. It's just that this pressure puts us in an impossible situation.” His family brought an initial payment of 800,000 yuan ($116,000), and he also took out a 600,000 yuan ($87,000) loan.

According to several buyers in Wuhan, there have been protests by disgruntled homeowners in the city. In all, more than 300 real estate projects in about 100 cities are affected by these payment boycotts, according to a collaborative document posted online under the title “WeNeedHome.”

Many are in Zhengzhou, a major city in central China, where authorities have, however, set up a fund to help developers complete the work.

Now, the loss of Chinese confidence in the sector could further exacerbate the crisis, warns Tommy Wu, an analyst at Oxford Economics. “The danger of a vicious circle developing - falling home sales and prices, increasing distress among developers, and deteriorating local government finances - is worrying.”