According to new estimates from S&P Global Ratings, China's property sales will plunge by more than they did during the financial crisis.
The ratings agency said that national property sales will likely drop by 30% this year due to a growing number of Chinese buyers suspending their mortgage payments.
The director at S&P Global Ratings said in a phone interview that such a drop would be worse than in 2008.
There has been a rapid increase in Chinese homebuyers refusing to pay their mortgage until developers finish their apartments.
Most homes in China are sold before they're finished. Beijing cracked down on businesses' high reliance on debt for growth in the last two years, making it difficult for them to get financing.
The real estate sector in China will not recover this year because of the mortgage strike.
If there is a sharp decline in home prices, this could threaten financial stability.
She warned that if the situation is not contained more developers will fall into financial distress.
If buyers don't get the apartments they paid for, there's a chance of social unrest.
Within a few weeks, the number of mortgage strikes increased, but analysts don't think there will be a financial crisis.
2.5% of Chinese mortgage loans could be affected by the suspension of mortgage payments, according to a note by S&P.
The report warned that a decline in home prices could threaten financial stability. This is important enough for the government to immediately roll out relief funds.
Chinese policymakers have encouraged banks to lend money to developers. Since mid-March, authorities have generally expressed more support for real estate.
The scale of the support is not large enough to save the situation.
There is no expectation of a sharp decline in house prices due to local government policy. Home prices are expected to decline in the coming year.
According to S&P economists, 25% of China's GDP is affected by real estate, but they don't have a number on the impact of mortgage strikes on GDP.
Local governments and land use policy make it difficult to resolve problems in China's real estate sector.
According to an analysis published Tuesday by the China Chief Economist Forum, the amount of residential floorspace has not grown on average since 2005, while the amount of land area sold has declined on average.
There was rapid growth in both land area sold and completed residences before the new bidding process took effect. The new bidding process pushed up housing prices more than speculation did.
Goldman said in a report that high-yield China property debt should only be considered by investors if they are interested in the best developers. We can see the relative value in their bonds.
There is uncertainty in one of China's largest sectors.
The continued stresses in the property sector coupled with the uncertainties related to COVID measures suggest a murkier outlook for China.
A scenario in which credit worries remain elevated but without real systemic concerns creates a negative overhang for investor sentiment on high yield credit markets.
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