BEIJING – China’s property market is in desperate need of a confidence boost, analysts said, after news of homebuyers stopping mortgage payments rocked bank shares and raised fears of a systemic crisis.
The size of the mortgages is less of a concern than the impact of recent events on demand and prices for one of China’s biggest financial assets: residential housing.
“It is critical for policymakers to quickly restore confidence in the market and break the potential negative feedback loop,” Goldman Sachs chief China economist Hui Shan and his team said in a report on Sunday.
Last week, a sharp increase in the number of homebuyers who stopped paying their mortgages prompted many Chinese banks to announce their low exposure to these loans. But bank shares fell. Homebuyers protested delays in the construction of apartments they had paid for before completion, as is typical in China.
“If left alone, more homebuyers may default on their mortgages, [further] straining developers’ cash flow, which in turn could lead to further construction delays and project shutdowns,” the Goldman report said.
The uncertainty “is dampening the desire of households to buy homes from these developers, who are likely to need the sale the most,” analysts said.
After two decades of tremendous growth, Chinese developers have found it harder to stay afloat under Beijing’s crackdown on companies’ heavy reliance on debt for growth. Heavily indebted developers such as Evergrande Group defaulted late last year.
Developers’ ongoing financial woes, coupled with Covid restrictions, have delayed construction projects and prompted homebuyers to jeopardize their own financial credit by suspending mortgage payments.