This is a sequel to my earlier post on the growing phenomenon of residential mortgage defaults in China. Here is what we know so far:
Home buyers in two dozen Chinese cities (including Beijing and Shanghai) have stopped paying mortgages on their unfinished homes. They are risking the down payments and their credit scores in a protest against the prolonged construction delays.
The number of cities and construction sites are growing, now estimated to affect more than 150 real estate projects.
The real estate developers include cash-strapped companies like Evergrande. Most of the private developers are in some kind of financial distress currently.
The construction delays are mainly due to liquidity problems at the developers, and the lack of regulatory enforcement to protect the home buyer interest. Covid-related lockdowns also cause the setback, to a certain extent.
A number of Chinese banks responded with their own risk assessment, saying the default risk is “controllable”. Based on the banks’ announcements, the related non-performing assets account for just 0.001% to 0.01% of their mortgage loans (Mortgage is typically 20-40% of the toal loan portfolio).
Some expect a massive default wave valued at hundreds of billions of USD, and a subprime-like crisis in China. The more optimistic forecasts set the potential mortgage defaults between RMB 360 billion (USD 53 billion) and RMB 730 billion (USD 108 billion).
The Chinese government said they are working closely with the banks and real estate developers to resolve the situation, but no specific solutions are given so far.
What could happen next:
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