China’s Zhengzhou city is setting up a rescue fund for property developers as more and more homeowners join a nationwide boycott of mortgage payments on unfinished homes.
The bailout, one of the first to deal with the growing mortgage uprising in China, will be established jointly by Henan Asset Management and developer Zhengzhou Real Estate Group, according to a statement from the asset manager. The two units are supported by the funding arms of the local government.
Bailout measures for the real estate sector are being closely monitored by investors after hundreds of thousands of home buyers in open letters threatened to halt payments, exacerbating a crisis in the real estate sector that is weighing on China’s economic growth.
Advance sales, where home buyers usually take out a mortgage to pay for a property that has not yet been completed, are widespread throughout China. Anger is growing among buyers who have already paid for homes that developers have not been able to deliver due to financial difficulties.
The boycott has spread to more than 300 real estate projects in China on Sunday from 200 projects last week, according to a crowdsourced document entitled “WeNeedHome”. Evergrande, the world’s most indebted developer, Sunshine City, Sunac and Kaisa are among the developers affected by the boycott.
The action has raised concerns about the risk of default in banks. Last week, the financial supervisory authorities rushed to eradicate the widespread panic over the system’s financial health by asking banks to disclose the degree of their mortgage exposure. Sixteen listed banks revealed that a small proportion of the loans were vulnerable to damage.
Zhengzhou City Fund aims to help “revitalize problematic real estate projects and save developers in difficulty,” said Henan Asset Management, without revealing the fund’s size.
Zhengzhou, the capital of Henan Province, is the most vulnerable to the mortgage uprising of 91 affected cities, according to data compiled by researchers at E-House China Enterprise Holdings, a real estate service company.
Over the weekend, the country’s bank guards urged banks to increase lending to developers to help them complete projects, and promised to step up coordination with the central bank and the housing regulator to “guarantee the delivery of housing.”
Local authorities in Chongqing and Ningbo have also set up working groups to address unfinished projects, according to local media. Boligtilsynet distributes surveys among home buyers to assess the situation, according to online questionnaires seen by the Financial Times.
Analysts warned that Beijing needs to show more support to the sector to strengthen investor confidence.
“We believe a stronger indication of central government support will be needed, including liquidity for certain projects,” said Rory Green, China’s chief economist at TS Lombard.
“The stop in mortgage payments is very small in scale, but until a clear attitude towards defaulters is taken and the spread of deliberate mortgage maturities is stopped, caution is needed.”
Beijing is expected to try to alleviate panic among home buyers, said Wang Qi, CEO of fund manager MegaTrust Investment in Hong Kong.
“The real estate industry needs as much support as possible at this point,” Wang said.
“There is guaranteed to be more regulation to protect homebuyers’ interests. China cannot afford to lose consumer confidence at this time. “