China’s homebuyers are running out of patience with the real estate slump

Chinese real estate developers, including highly indebted Evergrande, have operated a business that relied on selling apartments before they were completed. Pictured here is an Evergrande development in Beijing on Jan. 6, 2022.

China's real estate market desperately needs a boost in confidence after reports of homebuyers stopping mortgage payments shook bank stocks and raised fears of a systemic crisis.

The impact of the latest events on demand and prices for residential housing in China is more important than the size of the mortgage.

It is critical for policymakers to restore confidence in the market quickly and to break a negative feedback loop.

Many Chinese banks announced their low exposure to such loans last week after a spike in the number of homebuyers stopping mortgage payments. The bank stock fell. In China, delays in the construction of apartments are common.

The Goldman report said that if left on its own, more homebuyers may stop paying mortgages, which in turn could cause more construction delays and project halts.

The analysts said that uncertainty makes households want to buy homes from developers who need the most sales.

Beijing has cracked down on the companies' high reliance on debt for growth, making it harder for them to stay afloat. The Evergrande Group was a highly indebted developer.

Homebuyers are putting their own financial credit at risk by suspending their mortgage payments due to developers' persistent financial troubles.

The number of property projects doubled in a few days to more than 100.

The analysts said that it was a small part of the total mortgage balance.

According to a report last week by the financial services analysts at Goldman, the average exposure to property was just 17%.

The report states that the mortgage risk is more about households willingness to make mortgage payments than ability.

If more people refuse to pay their mortgage, there will be less demand and less prices.

That has led to calls to increase confidence.

There is no hope for a quick rebound in the real estate sector in the second half of the century. It has proved to be a difficult task to boost the confidence of buyers and developers once again.

Since there are legal processes to address delays in completing apartments, Halting mortgage payments shouldn't be a common practice.

He said that reports of stopped payments are very bad for the real estate sector.

If developers fail to deliver apartments within the agreed period, homebuyers can apply to end their purchase contracts.

In order to get approval, the developer will need to return the down payment and completed mortgage payments, according to analysts. The report said the remaining mortgage payment should go to the bank.

The demand for houses has gone down.

According to a survey by the People's Bank of China, only 16.9% of residents plan to buy a home in the next three months.

The central bank lowered the mortgage rate in order to boost the real estate market. In the last few months, many cities have relaxed their policies.

Real estate sales have fallen 25% or more from last year.

Over the last year, the average price across 100 Chinese cities has barely risen, although prices in large cities like Beijing and Shanghai have risen by double-digits.

According to Bruce Pang, chief economist and head of research, Greater China, any policy that can assure the delivery of homes would be helpful. He said banks have the ability to restore market confidence.

The former head of the People's Bank of China said Saturday that China wouldn't experience a "subprime mortgage crisis" like the one in the U.S. A state media report says that.

In an article that encouraged local governments and developers to deliver houses on time, the Securities Times raised the spectre of systemic financial risk.

Harry Hu, senior director at S&P Global Ratings, said that credit losses relating to mortgage loans are minimal at most Chinese national banks.

If the latest suspension in mortgage repayments by some resident groups in China is not managed well, it could lead to system risks.

The official newspaper for China's banking and insurance regulators pushed to support the delivery of apartments and financing for the real estate industry.

China's GDP could have grown by 3% in the second quarter without the property sector dragging it down.