This is a super important story right now. Every single economist I’ve had on shows is following this extremely closely.

Why Are People Across China Refusing to Pay Their Mortgages? What to Know So Far.

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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. Until recently, China’s mortgages have been considered among the safest banking assets because of high down payments and collateral value.

The nation’s real estate slump began last year as Xi Jinping sought to tame bubbly prices and reduce risks by curbing the growth of mortgages and funding for property developers. City and provincial closures as Beijing battled a Covid outbreak also contributed to a downturn in housing sales. 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.

The rapidly rising number of refusals to pay have triggered losses in Chinese bank shares and developer bonds. Authorities held emergency meetings with banks this week to grasp the impact of the mortgage snub, sources told Bloomberg News. Some banks plan to tighten their mortgage lending requirements in high-risk cities, they said. While no solution has been offered, Beijing’s priority is to avoid a deeper property crisis that would send shockwaves across the financial system. . . .

Developers only delivered around 60% of homes they presold between 2013 and 2020, while outstanding mortgage loans rose by 26.3 trillion yuan, Nomura analysts said. Should every buyer default, that would lead to a 388 billion yuan ($58 billion) increase in non-performing loans, according to Jefferies. GF Securities Co. expects that as much as 2 trillion yuan of mortgages could be affected by the boycotts. However, Chinese lenders have mostly said that the situation remains controllable. In most cases, the amount overdue makes up less than 1% of the lender’s total mortgage portfolio.


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