China Faces Mortgage Boycotts and Bank Runs

Mortgage defaults and bank account freezes are two of the most significant problems that pose a danger to China’s social stability, and the country’s government is working to calm public anxiety about these problems.

On Sunday, the China Banking and Insurance Regulatory Commission asked banks to improve lending support for real estate developers so that they may finish unfinished projects. This comes at a time when thousands of dissatisfied homebuyers are staging a boycott of mortgages across the country.

In China, real estate companies are authorized to sell properties prior to the completion of construction, and buyers are required to begin making mortgage payments even before they take physical possession of their new home. These money are used by the developers as financing for the construction project.

The payment boycott comes at a time when a growing number of projects have been postponed or halted because property developers are experiencing a cash shortage. The previous year saw Evergrande default on its debt, and this year has seen a number of other corporations seek protection from their creditors.

As a result of declining home prices, some purchasers may find themselves in a situation in which they are “underwater” on their mortgages. This means that they are obligated to make payments on a property that is currently worth less than the amount they originally agreed to pay for it.

According to various reports from state-run media and statistics provided by the Shanghai-based research firm China Real Estate Information Corporation, buyers across 18 provinces and 47 cities had ceased making payments as of the previous Wednesday.

According to a report in China Banking And Insurance News, the regulator’s own publication, an unnamed official from the CBIRC stated that the regulator pledged on Sunday to work closely with local governments to ensure timely delivery of unfinished residential projects. The official was citing a report that was published by the regulator.

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Monday saw a widespread uptick in developer optimism following the publication of the news. The value of Guangzhou R&F Properties increased by 9%. The growth at Country Garden was 6 percent higher. The value of Longfor Properties increased by 4.1 percent. Vanke Real Estate also climbed 2.9 percent .

The expectation that China will provide even more stimulus was another factor that helped raise regional stock prices. The Hang Seng Index saw a gain of 2.7 percentage points, while the Shanghai Composite saw a growth of 1.6 percentage points.

However, analysts stressed the need for caution.

Analysts from Nomura stated on Monday that “While this move [by the regulator] is encouraging, the issue is very complicated and it is unlikely the CBIRC will be able to handle it on its own.”

The nation’s financial regulator made a commitment on Sunday to increase capital buffers for thousands of small banks, which are facing worsening balance sheets as a result of a weak economy and a slump in the property market. This move was made in response to rising public anger over frozen deposits at some rural banks in the nation.

In the past few weeks, unrest has broken out in the central area of China as a result of the inability of thousands of depositors to access their funds at the rural banks located there.

The regulating body also stated that it has already granted permission for local governments to issue special bonds totaling over $15 billion in order to restore the capital of small banks this year. By the end of August, it will work in conjunction with the ministry of finance to authorize an additional thirty billion dollars worth of bonds.

This move comes just a few days after Chinese authorities announced that they will begin refunding some bank customers whose accounts had been frozen for months.

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At the beginning of this month, protesters in Zhengzhou city, which is located in Henan province, staged a large-scale demonstration that was forcefully suppressed by police. The depositors, who have been trying for weeks to regain their frozen savings, staged the largest demonstration that they had staged to this point.

The nation is coping with a sharp slowdown in activity due to Beijing’s stringent zero-Covid policy, a bruising regulatory crackdown on the private sector, and a real estate crisis that is causing rising bad debts at banks and growing social protests. Policymakers in the world’s second largest economy are facing mounting challenges to maintaining steady growth.

On Friday, China said that the country’s gross domestic product, the broadest gauge of its economy, increased by 0.4 percent in the second quarter of 2018 when compared to the same period in 2017. The performance was the worst it has been since the first quarter of the year 2020.