Chinese homebuyers have run out of patience with developers

Newly married and with his first child on the way, auto worker Wang wanted to move into the apartment he bought in Wuhan three years ago, but those hopes were dashed by China’s widening housing crisis.

Loaded with $300,000 in debt and still a long way from completing his unit, the 34-year-old decided he’d had enough and stopped making mortgage payments.

He is among scores of homebuyers in dozens of cities in China who have boycotted payments over fears their properties will not be completed by troubled, indebted developers.

“They said construction would resume soon,” Wang told AFP, giving only his last name. “But no workers showed up.”

Beijing resident Wang planned to start a family after purchasing the house.

“It was not easy for us to buy this house. It all came from my savings,” Wang said.

“Now there is no home and we still owe two million yuan ($300,000) in mortgage payments.”

After years of explosive growth fueled by easy access to credit, Chinese authorities launched a crackdown on excessive debt in 2020.

That limited financing options for real estate giants like Evergrande as they struggled to make repayments and restructure mountains of debt.

Now they face mortgage boycotts and government pressure to deliver pre-sold homes.

In Wuhan, capital of Hubei province, buyers like Wang said they received multiple notices of postponement for their apartments from developer Myhome Real Estate, months after the promised delivery date of late 2021.

The developer said in a note this week that it had managed to free some frozen funds, adding that it expects to complete the Wuhan project by the end of 2022.

Wang said he stopped making repayments this month and complaints to the city authorities made no difference.

“There is no hope in life to continue with such payments.”

The “crisis of confidence” in China’s housing market points to structural flaws, Gavekal Dragonomics’ Andrew Batson said in a recent report.

Because of their heavy reliance on selling homes upfront, developers are pursuing business models that put buyers at risk of not getting their homes, he added.

As financially troubled companies stop building projects, “these risks have materialized dramatically.”

The crisis has left homebuyers in limbo.

“I thought it would never happen,” a Wuhan homebuyer surnamed Hu said of his unfinished home.

The 25-year-old said his family took out loans in 2018 to help pay down a three-bedroom apartment.

At that time, Wuhan encouraged college graduates like Hu to get household registrations in the city, he said.

Known as “Hukou,” these extremely important government registrations allow access to health care and schools.

“Back then everyone was buying real estate … people were competing for it,” he said.

Another young homebuyer, Xue, said almost all of his salary now goes toward rent and mortgage payments.

“I don’t want to pay more,” said the 24-year-old. “Our hearts are cold.”

“It’s not that we’re violating laws or treaties, but this situation puts too much pressure on us.”

Xue’s family paid 800,000 yuan for the apartment, while he took out a 600,000 yuan loan, which he has been repaying for two years.

Buyers in Wuhan told AFP there have been protests over unfinished pre-sold homes in the city.

Homebuyers in around 100 cities – involving more than 300 housing projects – have boycotted mortgage payments, according to a crowdsourced document called WeNeedHome.

Many are located in the provincial capital of Zhengzhou in central Henan, where authorities have set up a fund to help developers complete projects.

Other affected cities are Chongqing and Changsha.

There have also been allegations of financial mismanagement, according to local media reports, and some cities have urged banks to tighten their oversight of escrow accounts.

Nomura analysts estimate that between 2013 and 2020, Chinese developers delivered only about 60 percent of the homes they pre-sold.

During those years, China’s outstanding mortgage loans increased by 26.3 trillion yuan, Nomura added.

The real estate sector’s woes were highlighted last year when it emerged that Evergrande was struggling to repay its creditors, prompting panic that the industry, which accounts for about a quarter of China’s GDP, was on the verge of collapse.

Homebuyers’ ability to make mortgage payments is not the main issue, Tommy Wu, senior economist at Oxford Economics, said in a report.

But a loss of confidence in developers will exacerbate the real estate downturn, he added.

“The likelihood of a vicious cycle – declining property sales and prices, increasing distress among property developers and deteriorating local government finances – is worrying.”