Chinese homebuyers are growing impatient as the market continues to deteriorate

DNHN - Many banks have increased liquidity precautions as a result of the unexpected surge in the number of Chinese homeowners postponing mortgage payments. Economists are concerned if more homebuyers fail to pay their mortgages, the market's low feeling would diminish demand and prices will continue to decline, damaging sentiment within a cycle. The real estate crisis has created a vicious spiral.

Analysts believe China's property market is in desperate need of a dose of medication to improve purchaser confidence after stories of homebuyers delaying mortgage payments shook bank stocks and stoked worries of a system-wide collapse. The amount of mortgages is not as concerning as the impact of recent events on demand and pricing for one of China's and the world's major financial assets: real estate.

"It's critical for officials to immediately restore market confidence and break the possible negative feedback loop," Goldman Sachs China economist Hui Shan and a senior fellow at the Washington Post wrote in a study published on Sunday. According to Goldman research, if no action is taken, more purchasers may quit making mortgage payments, affecting real estate developers' cash flow and perhaps leading to building delays. Construction and projects have been halted.

Analysts feel that "uncertainty" dampens families' appetite to buy houses from these developers, who are thought to need sales the most.

After two decades of rapid growth, China's real estate developers are finding it difficult to maintain their position as China sets a three-red line restriction to prevent overheating in this industry. Evergrande Group defaulted on its obligations late last year, leaving developers highly indebted. The persistent financial difficulties of developers, along with Covid regulations, have delayed building projects, exposed homeowners to financial credit risk, and resulted in a temporary suspension of development. Make no more mortgage payments.

Jefferies statistics, the number of projects whose purchasers defaulted on their loans more than quadrupled in a matter of days, reaching more than 100 as of July 13. According to observers, such loans account for a minuscule fraction of one per cent of overall house loans in China, but they remain a volatile occurrence.

There is evidence that the effect is spreading: several suppliers of house building project developers have begun to refuse to pay their bank loans, claiming the developers' failure to pay their payments on time. Hundreds of suppliers in China's real estate business have complained that they are unable to repay their loans since developers such as Evergrande still owe them money, according to the Chinese financial journal Caixin this week.

A few days earlier, China's state-run banking and insurance daily issued a similar opinion, urging assistance for fast house delivery and guaranteeing liquidity for the real estate business.

Goldman Sachs, if the real estate industry had not posed impediments, China's GDP might have climbed by 3 per cent in the second quarter compared to the same period last year, rather than the 0.4 per cent recorded last week.

Anh Dung