Don't Panic Over the Mortgage Defaults

No subprime-like crisis brewing in China

It was recently reported that home buyers in nearly two dozen Chinese cities have stopped making mortgage payments on their unfinished homes, in an effort to force the banks and local governments to intervene.

In my twenty plus years investing in China, I have never heard of such things. Chinese people are usually pretty careful with money and credit, especially when the credit is tied to their homes - the center of everything. (Under China’s strict real estate regulation, nearly all of the new homes are for people’s own use, not investments).

Something extraordinary must be happening. The Chinese real estate debt crisis has led to a large number of unfinished projects. Evergranda alone has around 1 million undelivered housing units, according to some estimates. Not all Evergrande projects are in distress, however. The company has promised to deliver some 600,000 units this year.