Mortgage boycott forces Chinese city to set up bailout fund

The Chinese city of Zhengzhou is setting up a bailout fund for real estate developers, as borrowers flock to a nationwide boycott of mortgage payments on undelivered homes. The bailout package, one of the first to deal with the mounting revolt by homeowners in China, will be jointly established by investment manager Henan Asset Management and real estate group Zhengzhou Real Estate Group, according to a statement from Henan Asset Management.

Both organizations are supported by local government funding institutions. The real estate rescue measures have been closely watched by investors, after hundreds of thousands of homebuyers released open letters in which they threatened to suspend their payments, exacerbating the real estate crisis that has been hampering economic growth in the country. China. Pre-sales, under which buyers take out a mortgage in order to pay for a property whose construction has not yet been completed, is a widespread practice in China.

The anger of buyers who have already paid for properties that developers were unable to deliver due to financial difficulties is growing. The boycott had extended to more than 300 real estate projects in China as of Sunday, up from 200 last week, according to a document distributed via “crowdsource” and titled “WeNeedHome.” Evergrande real estate group, the most indebted on the planet, and other developers such as Sunshine City, Sunac and Kaisa are among the companies hit by the boycott. The protest caused concerns among banks about possible default by their creditors.

Last week, Chinese finance regulators moved quickly to quell widespread panic over the financial health of the system, asking banks to disclose their degree of exposure to mortgages. Sixteen publicly traded banks reported that a small proportion of their loans were vulnerable to damage. The Zhengzhou Municipal Rescue Fund aims to “revitalize troubled real estate projects and rescue struggling developers,” announced Henan Asset Management, without disclosing the fund’s value. Zhengzhou, the capital of China’s Henan province, is the city most exposed to the borrowers’ revolt among the 91 Chinese cities where the movement is active, according to data compiled by researchers at E-House China Enterprise Holdings, a research firm. real estate services.

Over the weekend, China’s banking watchdog urged banks to increase their real estate lending to help companies complete projects, and pledged to strengthen coordination with the central bank and housing regulatory authority to of “guaranteeing the delivery of houses”. The municipal governments of Chingqing and Ningbo have also established working groups to deal with the unfinished projects, according to local media reports. The housing regulatory agency is distributing questionnaires among homebuyers to assess the situation; the Financial Times had access to these online questionnaires. Analysts have warned that Beijing needs to show more support for the sector to shore up investor confidence.

“We believe a stronger indication of support from the central government will be needed, which would include providing liquidity for certain projects,” said Rory Green, chief economist at consultancy TS Lombard for the Chinese market.

“The suspension on mortgage payments is very small in scale, but until a clear position on the default is defined and the expansion of defaults is stopped, caution is needed,” he added.

Wang Qi, chief executive of Hong Kong-based investment manager MegaTrust, said Beijing was expected to try to rein in the panic among homebuyers.

“The real estate industry needs maximum support at this point,” Wang said. “There will be more regulation to protect the interests of homebuyers, of course. China cannot afford to take the risk of having its consumers’ confidence shaken at a time like this.”

Translation by Paulo Migliacci