China home sales plummet in July as mortgage revolt deters buyers

China home sales plummet in July as mortgage revolt deters buyers

An incipient two-month recovery in home sales in China ended in July as a widespread mortgage revolt over concerns that struggling real estate developers would be unable to deliver unfinished homes weighed on demand.

Sales by the country’s top 100 real estate developers fell 39.7% in July from the same period last year to the equivalent of US$77.6 billion, or 523.14 billion yuan, according to data released on Sunday by CRIC, a Chinese real estate data provider .

July sales fell 28.6% from June, ending a two-month rebound in monthly sales growth. Home sales showed a month-on-month increase in May and June as activity picked up following Covid lockdowns in Shanghai and other Chinese cities earlier this year.

China’s private real estate developers enjoyed a years-long, debt-fueled construction boom, selling houses before they were built until a funding crisis that began last year caused defaults and project stalls. Buyers, who typically have large down payments on these homes, have vented their frustrations all summer.

China’s home sales often slack in July as developers rush to book sales in June to meet first-half targets. But analysts said the main drag on activity this time around has been the mortgage revolt and its impact on potential buyer confidence.

The revolt began in late June at an Evergrande project in Jingdezhen, in central China’s Jiangxi province, where frustrated homebuyers threatened to foreclose on mortgages on unfinished properties. Hundreds of buyers from about 320 projects across the country had followed suit as of July 29, according to a list of statements from homeowners who said they will stop paying their mortgages posted on GitHub, a Microsoft Corp.-owned Coding collaboration site, circulate.

Homebuyers – some waving signs that read “Building freezes and mortgage freezes!” – say the threat of payment freezes is the only way to make their voices heard when projects stall and delivery times are stretched. A generally slowing economy, affecting employment and income, adds to the pressure. Some buyers say they’re increasingly unwilling to keep paying for a home they’re not sure they’ll ever get.

Week-by-week data previously compiled by CRIC to examine the impact of the mortgage revolt had signaled July’s decline. In 30 cities seriously affected by the revolt, according to CRIC, new home sales fell 12% in the week ended July 10 from the previous week and then fell 41% in the week ended July 17.

More and more home buyers are choosing pre-owned homes or new homes built by government developers who are typically in a stronger financial position.

As foreign investors and homebuyers lose confidence in China’s real estate market, developers are offering cars and pigs to boost sales. The WSJ is examining ads and policies to see how the country’s housing turmoil could affect the global economy. Photo composite: Sharon Shi

Pressure on the government is mounting, but hopes for a major real estate rescue package from Beijing remain unfulfilled. The Politburo, China’s top political body, recently made it clear that local governments are ultimately responsible for solving the real estate problems in their markets.

Local authorities with tight budgets are striving to stimulate housing demand and are resorting to increasingly creative measures. Dozens of cities have lowered down payments and interest rates. Some offer direct cash subsidies. Others have announced relief funds for insolvent developers or plans to take over troubled projects.

“But the sector will not stabilize unless developers’ liquidity crunch is alleviated,” said Song Hongwei, a research director at the Tongce Research Institute, which tracks and analyzes China’s real estate market.

On Friday, troubled real estate developer China Evergrande Group outlined the contours of a plan to restructure its billions of dollars in debt and said its contracted home sales fell about 97% in the first six months of the year compared to the same period last year.

write to Cao Li at [email protected]

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