China property crisis: Why homeowners stopped paying their mortgages

Mortgage stops, construction stops. Get repaid if you deliver homes.

The disgruntled apartment buyers in China used that chant at the protest. Their ire was not limited to signs and chants.

Hundreds of them stopped paying their mortgage, which was a radical step for China.

The developer withdrew from the project after receiving the down payment, according to a young couple who moved to Zhengzhou.

The woman, who did not wish to be named, said that living in a new home felt ridiculous.

After the project is fully resumed, a woman in her late 20s who also bought a home in Zhengzhou said she would stop paying her mortgage.

Many of them can pay but are choosing not to, like in the US in 2007, when high-risk borrowers who then default on their loans.

According to a crowd-sourced estimate, they have purchased homes in over 300 projects around the country. It is not clear how many stopped paying.

S&P Global estimates that the boycotted loans could be as high as 20 billion dollars. Some analysts think it could be higher.

The market is under pressure due to a slowing economy and a serious cash crunch.

It shows a lack of confidence in one of the main pillars of the economy.

According to Oxford Economics, mortgage boycotts are a serious threat to the financial position of the sector.

The property sector makes up a third of China's GDP. Houses, rental and brokering services, industries that produce white goods that go into apartments, and construction materials are included.

China's economy grew by 0.4% in the last quarter, less than the previous year. Some economists don't think the economy will grow this year.

Beijing's zero- Covid strategy has had a negative effect on incomes and savings.

Property can affect the global financial system because of the size of China's economy.

If banks think the sector is tanking, they will not lend.

"It will all depend on policy," says Shuang. Property bubbles break because of the markets in other parts of the world.

Thirty real estate companies have not paid their debts. The most high-profile casualty is Evergrande. More companies could follow suit if sales don't improve.

As China undergoes a demographic change, demand for homes is not increasing.

According to a senior China economist at Capital Economics, there is a turning point in the housing market in China.

Home buyers in China pay upfront for unfinished projects, which accounts for 70% of personal wealth.

According to Mr Evans-Pritchard, 70%- 80% of new home sales in China are pre-sales.

Because of a weak economy, job losses and pay cuts, many young and middle class Chinese are no longer investing in property.

Mr Evans-Pritchard said that developers were counting on new money to come in, but those sales are not happening anymore.

More than 200 billion dollars of loans could be tied to unfinished projects. Credit is one of the major sources of cash in the boom years.

The "three red lines" were introduced by the Chinese government in 2020. The lack of confidence in the market has made banks less willing to lend to property companies.

Beijing is putting the onus on local governments to offer reduced deposits, tax refunds and cash subsidies to home buyers. Local funds will take a hit as developers buy less land.

This is the time for the central government and regulators to act. The problem of some companies will eventually be ring-fenced. It's too important for the economy.

According to the Financial Times, China has issued more than $150 billion in loans to property developers, and there is a chance that mortgage holders will be given a payment holiday without affecting their credit scores.

Oxford Economics said that any government intervention in real estate and infrastructure may provide a short-term boost, but that it is not ideal for China's long-term growth as the government and the financial sector are being forced to help sustain an unproductive (and failing) real.

The financial crisis is not the only thing going on. There is a risk that the boycott of mortgages will become a serious issue.

Ahead of a crucial party congress later this year where he is expected to seek a historic third term, that could become a problem for President XI.

According to analysts, the reported bail out might not be enough. According to Capital Economics, companies need more than 400 billion dollars to finish halted projects.

Smaller rural banks may not be able to absorb the cost of the mortgage strike.

Many developers may not survive because house sales are not likely to shore up sentiment. The sales of China's 100 top developers fell in July compared to the same period last year according to China Real Estate Information Corp.

It's clear that China's economy is at a crossroads.

Mr Evans-Pritchard said that the economy has been reliant on property, infrastructure investment and exports over the last 30 years.

The era of rapid growth in China is over and that is most obvious in the property sector.

There are additional reports by the Beijing station.