It began as an act of protest by fed-up apartment buyers in a single project in a city in central China. Now tens of thousands of people across the country are withholding mortgage payments on homes that developers, including China Evergrande Group, have yet to complete.
A fierce boycott of loans worth up to 2 trillion yuan ($296 billion) threatens to deepen China’s property slump by shifting focus from the country’s struggling real estate companies to its massive banks. Lenders have relied on mortgages as their safest source of income as Covid lockdowns hamper growth.
Politicians are on alert. Financial regulators have called on banks to increase lending to builders to help complete projects, and officials are even considering deferring payments to homeowners, according to people familiar with the matter. One bank after another assured investors that the risks were controllable and their exposure to delayed projects was small, even as the lender’s shares fell. Shares and bonds of Chinese real estate companies were also pulled down, including those of some big players long seen as sheltered from the sector’s troubles. “If this trend goes unchecked and snowballs further, there is a risk that it could lead to a deterioration in the credit profiles of Chinese banks and cool the recent surge in property sales,” said Chang Wei Liang, macro strategist at DBS Bank. .
The protests are intensifying a crisis that Beijing appears to have under control, despite a wave of defaults by Evergrande and other developers in recent months. The real estate market has started to stabilize, with sales jumping last month compared to May. The chairman of one of the biggest developers said the market had bottomed out.
While the boycotts so far affect only a fraction of lenders’ combined mortgage portfolios, the speed with which the protests have grown has surprised many. They began in late June with a social media blast signed by 900 buyers at the stalled Evergrande development in Jingdezhen, a city near the Yellow Mountain known for its porcelain. They publicly asked the local government and the company to restore the construction within three months or they would stop paying. As of Sunday, the movement had spread to at least 301 projects in about 91 cities, according to data from a crowdsourced document called “WeNeedHome.”
That’s up from just 28 projects less than a week earlier, according to a note from analysts at Jefferies Financial Group Inc. led by Shujin Chen. China Real Estate Information Corp. estimates that delayed projects in 24 major cities cover 24.7 million square meters (266 million square feet), equal to about 10% of properties sold last year. Although the original social media post threatened to withhold cash in a few months, there are already reports from banks of missed payments. “The stakes are high,” Nomura economists led by Ting Lu wrote in a note on Wednesday.
Tracking the scale of the protest has become increasingly difficult after China began censoring online documents with the number of boycotts in mid-July. These shared files have been a key source of data for global investors and researchers.
Gao Yang bought a 900,000 yuan apartment in the central city of Nanchang from Sinic Holdings Group Co. in 2019. He has been paying off the mortgage for two years, but the apartment unit is still not finished. Gao has taken dozens of three-hour train rides from his current home in Hangzhou to appeal to the local government and developer to do this. Sensing little progress, he plans to join the boycott next month by withholding his monthly payment of 4,000 yuan.