Cracks in the Foundation

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Hundreds of thousands of Chinese homeowners are boycotting mortgage payments and demonstrating over unfinished properties, a very rare form of protest in a country that rarely tolerates dissent and relies on real estate as its economic growth engine, Bloomberg reported Wednesday.

The unprecedented demonstrations come amid a property crisis in China, which began in 2020 when the Chinese government launched a crackdown on overleveraged real estate firms.

The move sparked a liquidity crunch and kept many developers, including real estate giant Evergrande, out of credit markets. Consequently, the construction of many properties and buildings that would normally be completed within 12 to 18 months ended up taking years or were halted completely.

However – buyers had to continue to make mortgage payments, a quirk of the Chinese market in which payments begin with a pre-sale deposit and continue until the work is completed.

Now, many homebuyers have been taking to social media to protest the delays and have vowed to stop paying mortgages unless construction resumes. Currently, more than 320 projects in about 100 cities have been facing similar protests, which have roiled markets, and forced authorities and developers to move to quell the unrest. This has included Chinese censors working intensively to silence the dissent, such as removing posts and preventing protesters from sharing documents.

Even so, the problem has reached the top echelons of the Chinese government, prompting President Xi Jinping to call on local officials to “ensure the completion” of housing projects.

But despite efforts to muzzle it, analysts noted that a coordinated boycott of this scale has never happened before in China. Some of the protesters also said that their efforts have prompted developers to restart construction, although it remains to be seen how soon they will be finished.

The government is also pressuring banks to lend to developers in order to complete projects, and it may seize undeveloped land from distressed corporations to pay for the work. It is also planning to establish a central bank-backed fund to finance construction.

Christian Goebel of the University of Vienna, in Austria, said that the protests show “something is really wrong with China’s real estate sector.”

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