Why is the world worried about the real estate crisis in China?

BEIJING: China’s struggling property sector suffered another blow this month when frustrated homebuyers stopped making mortgage payments on units in unfinished projects.

The boycott came with many developers struggling to manage mountains of debt and fearing the crisis could spread to the rest of the Chinese – and global – economy.


Colossal. Real estate and related industries are estimated to contribute up to a quarter of China’s gross domestic product (GDP).

The sector took off after market reforms in 1998. There was a jaw-dropping building boom driven by demand from a growing middle class who viewed property as a key family asset and status symbol .

The windfall has been fueled by easy access to loans, with banks willing to lend as much as possible to developers and buyers.

Mortgages make up nearly 20% of all outstanding loans across China’s banking system, according to an ANZ Research report released this month.

Many developments rely on “presales”, with buyers paying mortgages on units in projects yet to be built.

Unfinished homes in China account for 225 million square meters of space, Bloomberg News reported.


As property developers prospered, house prices also soared.

This worried the government, which was already worried about the risk posed by indebted developers.

It launched a crackdown last year, with the central bank capping the proportion of outstanding home loans to banks’ total loans in an attempt to limit the threat to the wider financial system.

This reduced the sources of funding for developers who were already struggling to manage their debts.

A wave of defaults followed, including by China’s biggest developer, Evergrande, which is over $300 billion in debt.

In addition to the regulatory crackdown, Chinese real estate companies have also been hit by the COVID-19 crisis – economic uncertainty has forced many potential buyers to rethink their buying plans.


Evergrande’s decline sparked protests by homebuyers and contractors at its Shenzhen headquarters in September last year.

In June of this year, a new form of protest emerged: the mortgage boycott.

People who had bought units in still unfinished projects announced they would stop making payments until construction resumed.

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