“The names on the list have doubled every day over the past three days,” Chen wrote in a note published on Thursday. “This phenomenon will dampen buyer sentiment, especially for products offered by private developers given the high risk on delivery, and weigh on the gradual sales recovery.”
The denial of payment underscores that the storm in China’s property sector is now affecting hundreds of thousands of average citizens, posing a threat to social stability earlier than one. Communist Party Congress later this year. Chinese banks, already grappling with the challenges of liquidity tensions among developers, will now have to be prepared for homebuyer defaults as well.
According to Jefferies, delayed projects make up about 1% of China’s total mortgage balance. Chen said that if every buyer defaulted, it would increase non-performing loans by 388 billion yuan ($58 billion). The report did not provide any estimates as to how many buyers are deferring repayment. Shares in China’s banks extended their recent decline on Thursday, with the CSI 300 Bank Index falling as much as 3.3%.
The Bloomberg Intelligence Index of Chinese developer stocks fell as much as 2.7%. Analysts believe that declining home values could be another driver for refusing to meet mortgage payments. “Investors are only concerned about the spread of mortgage payment snubs to buyers due to low property prices and the impact on property sales,” Chen wrote. Analysts at Citigroup Inc said in a note on Wednesday that the average selling price of properties in nearby projects in 2022 was an average of 15% below the purchase cost over the past three years. China’s home prices fell for the ninth month in May, with June’s figures set to be released on Friday.
The Chinese developers’ woes are approaching a new phase, with debt sales expanding to firms once considered cash-strapped, including Country Garden Holdings Co., the largest by sales. is builder. While rising non-performing loans for Chinese banks are “manageable” for now, “in the backdrop of China’s growth slowdown, more risky events are expected, residents’ poor future income expectations, and asset sales.” lack,” said Chen of Jefferies, affecting China’s social stability.
Presale Risk Nomura Holdings Inc. U.S. analysts said the refusal to pay mortgage stems from a widespread practice in China to sell homes before they are built. Confidence in the completion of projects has eroded as the cash crunch intensifies for developers. Even before the crisis, developers only delivered about 60% of homes between 2013 and 2020, while outstanding mortgage loans increased by 26.3 trillion yuan, Nomura analysts including Ting Lu wrote in a note on Wednesday.
“Presales pose increasing risks for developers, homebuyers, the financial system and the macro economy,” Ting wrote. Failure to build homes on time reduces homes’ willingness to buy new properties, and rising raw material prices can mean that funds from pre-sales are insufficient for their construction. “We are particularly concerned about the financial impact of the ‘stop mortgage payments’ movement of homebuyers,” Ting wrote.
“China’s asset slowdown could adversely affect onshore financial institutions once they finally enter the offshore high-yield dollar bond market.”