Chinese buyers lose patience amid housing crisis

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Newly married and with his first child on the way, Wang had hoped to move into the apartment he bought in the city of Wuhan three years ago, but his plans have been thwarted by China’s growing housing crisis.

With a debt of US$ 300 thousand (R$ 1.5 million) and an apartment far from being completed, the 34-year-old worker got tired and decided to suspend the payment of his installments.

He is one of many homebuyers in dozens of Chinese cities who have stopped paying their mortgage payments for fear that debt-ridden and cash-strapped homebuilders and developers will not finish their homes.

“They said that construction would resume soon. But no workers showed up,” the man, who only wanted to be identified by his surname, told AFP.

A resident of the capital, Wang planned to move to Wuhan, in central China. “It was not easy to buy this house. It all came from my savings. Now there is no house and we still owe two million yuan ($300,000) in installments,” he laments.

After years of explosive growth fueled by easy access to credit, Chinese authorities launched a campaign in 2020 to curb excessive indebtedness.

That has limited financing options for industry giants such as Evergrande, which is struggling to repay loans and restructure its huge accumulated debts.

Now these companies also face buyer defaults and government pressure to deliver homes already sold.

In Wuhan, the capital of Hubei province, buyers like Wang say they have received multiple delay notices for their apartments from Myhome Real Estate, which had promised to deliver them by the end of 2021.

The company said this week that it has released some frozen funds and that it expects to complete the project by the end of 2022.

Wang decided to suspend payments this month. Complaints to city officials, he says, were futile. “There’s no hope in life if you keep making payments like this.”

in limbo

The “crisis of confidence” in the Chinese housing market points to structural flaws, says Andrew Batson in a report by Gavekal Dragonomics.

Due to the high dependence on apartments sold in the plant, developers have developed a business model that exposes buyers to the risk of not seeing their homes completed, he explains.

When companies with financial difficulties stop building projects, “these risks materialize dramatically.”

This crisis has left buyers in limbo.

“I thought this would never happen,” says a buyer from Wuhan, surnamed Hu, whose home is almost ready.

The 25-year-old explains that his family went into debt to help him pay for a three-bedroom apartment in 2018, at a time when Wuhan was encouraging young people to move to the city.

“Everybody was buying (…) People were competing.”

Another young buyer, surnamed Xue, says almost all of his salary now goes towards paying rent and loans.

“I don’t want to pay more,” laments the 24-year-old. “It’s not that I don’t respect the law or contracts, but this situation puts us under a lot of pressure,” he complains.

Xue’s family has advanced US$120,000 for the apartment and he has signed a US$90,000 loan that he has been paying off for two years without owning his property.

Those buyers in Wuhan said there were protests in the city over projects already sold and not completed.

Vicious circle

According to a document called “We Need Home”, buyers in about 100 cities and about 300 different real estate projects have joined the campaign to boycott payments.

Many are in the capital of Henan province, Zhengzhou, where authorities have set up a fund to help builders and developers complete their projects.

There have also been accusations of financial mismanagement and some cities have asked banks to tighten controls on deposit accounts, according to local media.

Analysts at financial firm Nomura estimate that Chinese real estate developers delivered just 60% of the units sold at the plant between 2013 and 2020.

The amount of outstanding home loans has increased considerably.

Those problems became evident last year when news broke about Evergrande’s trouble paying its debts, sparking fears of a collapse in the industry that accounts for a quarter of China’s economy.

Tommy Wu, economist at Oxford Economics, believes that this loss of confidence in the sector will exacerbate the crisis and could lead to a “vicious circle”, causing a drop in sales and house prices which, in turn, will increase the difficulties of companies.

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