China’s real estate crisis deepens amid homebuyer boycott movement


The crisis in China’s property market, exemplified by the default of Evergrande, the country’s most indebted real estate developer last November, is spreading. It is threatening a significant fall in economic growth under conditions where the government is battling to deal with the effects of the COVID pandemic.

Residential buildings developed by Evergrande in Yuanyang. (Photo: Wikimedia Commons)

Over the past few weeks, a home-buyer boycott movement has developed in which purchasers are refusing to continue payments for apartments they have purchased but which are still under construction.

In the past, the pre-delivery sales agreements have been a mainstay for property development as real estate companies have received money for projects not yet completed, enabling them to finance the next one.

The movement is extending with the Australian Broadcasting Corporation (ABC) reporting that hundreds of smaller companies involved in property development are threatening to halt loan payments because they are not receiving payments from the major developers.

The ABC cited a joint statement signed by a group of suppliers to Evergrande in Hubei province saying they are “broke” and will stop paying loans. Addressed to banks and provincial authorities, the statement said: “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis.”

While the home-buyer boycott movement is so far relatively small in relation to the total market—the Financial Times reported earlier this month that some 300 projects were involved—its growth has sparked concern at top levels of the government.

The FT reported on Monday that China’s State Council last week passed a plan to establish a real estate fund worth up to 300 billion renminbi ($44.4 billion) to support at least a dozen property development companies.

Initially the China Construction Bank and China’s central bank will inject 80 billion renminbi into the fund, and then possibly to 300 billion renminbi, to revive stalled construction projects.

The amounts of money involved are not small. According to a report published by Bloomberg on Monday: “Construction halts may affect 4.7 trillion yuan worth of homes in China, and up to 1.4 trillion yuan, or about 1.3 percent of the nation’s gross domestic product, may be needed to complete them.” [The yuan is another name for the renminbi.]



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