Leading banks and industry experts downplayed fears over perceived risks to China’s financial system from the suspension of mortgage payments by homebuyers in some smaller cities. Even if risks arise, they can be effectively controlled, they said. Leading commercial banks including China Construction Bank (CCB) and Agricultural Bank of China (ABC), said home loans whose repayments have been suspended by homebuyers are marginal and associated risks are controllable. According to China Business News, some people who bought homes in about 150 property projects across 20 provinces and regions refused to make mortgage payments due to delayed deliveries of their pre-sold homes.
Li Yujia, Chief Researcher at the Guangdong Planning Institute’s Residential Policy Research Center, attributed the mortgage payment suspension to the failure of delivery or even construction of certain residential projects. Home buyers who had to rent apartments while continuing to make their monthly mortgage payments found it increasingly difficult to do so. Selling new homes before completion and delivery is a conventional practice in China. Property construction can proceed with the pre-sale funds, which is usually under governmental supervision. But the recent mortgage payment suspension has raised alarms, said Yan Yuejin, Director of the Shanghai-based E-house China Research and Development Institution. TF Securities’ analysts said a worst-case scenario might see about 5% to 10% of property projects delaying delivery, with a corresponding sales value of CNY910 billion to CNY1.82 trillion.
Data from the People’s Bank of China (PBOC), the country’s central bank, showed that new home loans account for 38% to 42% of new home sales revenue. Mortgage loans whose payments have been suspended could be worth between CNY360 billion and CNY730 billion or about 0.9% to 1.9% of the mortgage balance of the first quarter of 2021. According to TF experts, the ratio is not big enough to exert any impact on the whole financial system.
Sun Tianqi, Director of the Financial Stability Bureau at the PBOC, said at a news conference that China’s financial risks are moderate and generally controllable, with 99% of the banking assets remaining within safe limits, as reflected by the central bank’s ratings for most small and medium-sized banks, the China Daily reports.
Housing demand in China will slump over the next five years, according to a new report. Overall property demand will decline 17% to 7.8 billion square meters from 2021 through 2025, compared with 2016 through 2020, according to the Beike Research Institute. In early July, new home sales fell 45.2% to 59,000 units, following an 11.2% drop in June and a decline of close to 46% in May, according to the securities firm. The ongoing debt crisis among home builders – including large developers China Evergrande Group and Sunac China Holdings as well as smaller ones such as Fantasia Holdings Group – is also sapping buyer confidence about home deliveries, the South China Morning Post adds.
Property prices in mainland China fell for a 10th straight month in June. New home prices in 70 cities, excluding state-subsidized housing, slipped 0.1% from May, when they declined 0.17%, the National Bureau of Statistics (NBS) said. The decline is likely to deepen in the coming months, with lower-tier cities expected to bear the brunt of the worsening market, according to analysts.
