A mortgage boycott has recently broken out in over 50 cities across China.
Betty Wang, a senior economist at Australia & New Zealand Banking Group Ltd., wrote in a note on July 14, “If more home buyers cease payment, the spreading trend will not only threaten the health of the financial system but also create social issues amid the current economic downturn.”
Additionally, there has been a large-scale protest by thousands of homebuyers in Xi’an for the first time. They ask banks to be investigated for illegal lending to builders.
A video shows thousands of victims of unfinished buildings in Xi’an gathering in front of Shaanxi Provincial Banking and Insurance Regulatory Bureau on July 14. They are holding up banners and chanting “illegal lending” for demonstration.
According to unofficial statistics, Xi’an is one of the hardest hit areas of unfinished buildings, with as many as 70. In March, nearly 300 homeowners of the “Yihefang” community in Xi’an moved into rotten-tail buildings with no hope of resumption. They have struggled to live in rough houses without water, electricity, and elevators.
More than 100 owners of Jinling Apartments in Xi’an High-tech Zone have suffered the same plight for nearly 5 years.
China’s official media, Securities Times, published a front-page opinion article on July 13 titled “Beware of the threat from the suspension of rotten-tail building supply.”
The article indicates if the problem is not resolved, it will hurt homeowners, housing companies, and banks.
It highlights that homeowners are not only harmed but also face social credit taint.
However, the owners with nowhere to complain about the suspension of mortgage payments this time are willing to risk losing their house and credit, hoping that the government will intervene to solve the problem.
Losing social credit points is extremely serious in China.
A 29-year-old female homeowner in Wuhan says everyone can understand the huge risks of losing social credit scores for individuals. She explains that if people loses social credit points, they will become a “laolai” or “debt dodger.” They will neither get on a plane nor do business. Moreover, it will influence their children; they will be marked with this label for the rest of their lives.
On July 15, Bloomberg gave a list of banks that have released details on delinquent loans related to the mortgage boycott. State-owned Agricultural Bank of China Ltd. is the most severely affected, with 660 million yuan (98 million dollars) over overdue loans on unfinished houses. The current amount of loans at risk incurred by banks reaches 2.11 billion yuan (312 million dollars).
Bloomberg says these figures are subject to change as more data becomes available. GF Securities Co. predicts it could be as much as 2 trillion yuan (296 billion dollars).
The widening mortgage boycott has also affected China’s financial market.
According to Reuters, the Hang Seng Mainland Properties Index plunged 5% on July 15, dragging the Hong Kong benchmark index down 2.2%. Shares of real estate companies also experienced a downward trend, such as the top developer Country Garden Holdings Co Ltd dropped 8.6%.