Zhengzhou sets up bailout fund as angry homeowners continue mortgage boycott

Domestic News

Authorities are trying to stop contagion from a growing number of furious homeowners who have refused to pay their mortgages on homes that have not been built yet.

Illustration by Derek Zheng

Zhengzhou, which has a population of roughly 10 million, and is the capital city of Henan Province, has been the epicenter of tens of thousands of protests from angry homeowners who are withholding their mortgage payments on unfinished homes in protest at delays by the real estate developers. “A drop in home values hasn’t helped,” notes Bloomberg.

  • Out of 91 affected cities, Zhengzhou is the most vulnerable to the mortgage revolt, per data from real estate services company E-House China Enterprise Holdings.

Now the Zhengzhou city government is creating a property developer bailout fund in a bid to contain the fallout from further aggravating China’s economy.

  • The fund will be jointly established by Henan Asset Management and developer Zhengzhou Real Estate Group, both of which are backed by the local government. Earlier, the banking authority encouraged lenders to extend loans and halt penalties on stalled payments on projects to prevent a crisis of confidence in the housing market.

The boycott on property loans worth as much as 2 trillion yuan ($296 billion) is still ticking upward, spreading to more than 300 property projects in China as of Sunday, up from 200 projects last week, according to a crowdsourced document titled “WeNeedHome” per Bloomberg.

  • Some suppliers to Chinese real estate developers — including companies that sell to Evergrande, the world’s most indebted developer — are threatening to stop paying their bank loans to protest the growing mountain of unpaid bills.
  • At least 17 banks have issued statements on their exposure to property projects that have been delayed. Most of them disclosed the amounts of their loans at risk, with a total of $328 million in mortgages tied to the stalled projects.
  • However, the overall impact on banks will be manageable, though small banks and state lenders may be more vulnerable due to the exposure on their profiles.
  • For banks covered by Goldman Sachs, average exposure to property including mortgages was just 17%, per the firm’s report last week.

Taking out a mortgage on an unfinished home, also known as presales, is common practice in China: More than 85% of houses are sold through presale, up from about 50% in 2005. Only about 18% of homes old in China are bought with mortgages — cash i still king , but the presales mortgages often begin months or even years before buildings are completed. But the overflowing frustration among buyers stems from those who have already paid for homes that still don’t exist after massive delays, where many developers have failed to deliver because of COVID lockdowns and persistent financial troubles in the sector.

  • The desire to buy a house has also hit a six-year low: Only 16.9% of residents plan to buy a home in the next three months, the lowest since 2016, according to a People’s Bank of China quarterly survey in June.

Meanwhile, Chinese censors have kicked into high gear: Online platforms with information about mortgage boycotts and online petitions have been scrubbed, social media posts tracking the issue have vanished from the internet, and some blogs on WeChat and Weibo discussing the movement were wiped, Reuters reports.

Nadya Yeh