LOSS OF CONFIDENCE WITHIN HOUSING MARKET MIGHT INVADE FINANCIAL SYSTEM
That’s not to say the angst is misplaced. Anything but. After more than two years of coping with the pandemic, everyone is more familiar with the implications of rapid growth rates.
The mortgage boycott started in late June with a single The far east Evergrande Group project in the city of Jingdezhen. That became 28, then 58, then at least 100 developments in more than 50 cities by Jul 13. As of Sunday, the tally has been at least 301 tasks in about 91 cities.
Capital Economics estimates that construction has been stopped on around thirteen million apartments during the past year, potentially affecting more than 4 trillion yuan in mortgage debt. Even if all of this could be backstopped, there is absolutely no telling how this type of loss of confidence might mutate and infect other parts of the financial system.
Just as worrying is the emergence of such non-payment strategies in the first place, a strain of behaviour hitherto unidentified in China. The nation has long been assumed to be immune from the type of self-feeding mortgage spiral that drove the us subprime crisis. Whenever you’re a fruit picker loaned fifty times your income to buy an US$750, 000 house with no cash down, it’s small trouble to leave if the market turns south.
The particular Chinese property market is a very different pet, with first-time customers required to front thirty per cent of the purchase price, at least until regulations were relaxed earlier this year. When homeowners are usually laying out that much of the wealth to obtain a mortgage, it takes something catastrophic to get them to give up.
In Hk, which had likewise onerous downpayment rules prior to the Asian economic crisis, mortgage defaults remained low even as house prices slumped simply by more than 60 percent starting in late 1997, with the delinquency rate peaking at 1 ) 43 per cent within 2001.