Many home buyers in China have suspended the repayment of bank loans for unfinished buildings. 

The turmoil in the real estate market has intensified as a group of suppliers of China Evergrande Group in Hubei Province have recently stopped paying loans issued to them by local banks.

Many people are wondering why struggling developers hesitate to file for bankruptcy.

In response, some netizens took to the mainland social platforms, commenting that once a housing developer declares bankruptcy and after the court approves, the buyers’ loans may not be repaid. 

If local developers go bankrupt on a large scale, buyers can automatically cancel contracts, and banks are forced to take on bad debts, with disastrous consequences.

Zheng Xuguang, an economist, based in the U.S., explained that the bank is the least willing to let a real estate developer go bankrupt.

If the house purchase contract has been terminated, then theoretically, the mortgage contract should also be terminated.

In this case, once the real estate company goes bankrupt, the bank—as a property claimant—can only get the assets after liquidation. But the assets are a batch of unfinished buildings.

Scholars said that some developers in China are not insolvent, but the regime’s policies make them unable to borrow money, and they are not willing to go bankrupt.

The U.S.-based economist Davy Jun Huang said that some real estate developers may still owe some construction fees and other expenses, but they are not in insolvency.

The problem is that it is difficult for them to realize billions of dollars of their assets because no one buys their houses during this hardship period.

Even if their houses sell slowly, the developers will be able to pay their debts, so they are not willing to go bankrupt.

Scholars believe the Chinese authorities could help local developers avoid bankruptcy and social problems caused by unfinished projects.

Davy Jun Huang said the problem in the case of Evergrande is related to the regime’s policies. The three red lines released in 2021 show that the administrative procedures changed too quickly, and the developers had no time to make a change.

The crisis of unfinished buildings in China has not only caused a break in the capital chain of real estate developers but also affected the financial system.

Now, the steel industry is also suffering. As a result, most steel companies chose to reduce or stop production to relieve pressure and minimize losses.

According to incomplete statistics, 28 steel companies in China have been forced to suspend production for maintenance.

Hundreds of contractors in the real estate industry have complained that they cannot pay various bills because developers still default on their debts.

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