As China’s housing crisis deepens and Chinese homeowners in 100 cities refuse to pay their mortgages, some local government officials are taking matters into their own hands.
Deng Bibo, county party secretary of China’s Hunan province, encouraged everyone to buy multiple houses during his opening speech at a real estate fair in Shimen, Hunan county on Tuesday.
“I hope that today all comrades will take the lead in buying real estate,” Deng said. “Buy one property, then buy a second. If you already bought a second one, buy a third one. third party bought? Then buy your fourth.”
The speech went viral on Chinese social media as netizens mocked the request. Douyin, the Chinese version of TikTok, was flooded with videos of Deng’s speech, attracting tens of thousands of user comments on each video. One user sarcastically replied, “It’s as easy as buying vegetables at the vegetable market.” Others asked where they would get the money to buy multiple houses.
Deng’s speech highlights China’s struggle to contain a growing crisis. For decades, Chinese citizens have invested their money in real estate, with a large proportion of Chinese household wealth – 70% – being stored in real estate. In China, homebuyers pay for a house in advance. These pre-sale funds essentially offer interest-free loans to property developers who have used them to rapidly expand construction projects.
But the central government, noticing the sizzling housing market, has sought to limit developers’ ability to borrow money so easily. When that cash flow became constrained, it resulted in stalled construction projects and semi-finished homes. This means that many of the homes that people have bought and paid for in full are not actually being built.
That crisis has deepened in recent weeks as homeowners across the country began refusing to pay their mortgages because of deadlocked projects and unfinished homes.
The country’s real estate problems threaten to upend its social stability – China’s middle class has long relied on real estate as its main source of wealth, and it accounts for 25% of China’s economy. That means Chinese citizens are seeing their investment choices no longer work for them as the nation faces its biggest economic slowdown in decades.
Nationwide boycott
China’s debt-driven real estate market has been in turmoil since last year, when Evergrande — the country’s most indebted developer with $300 billion in debt — defaulted on its dollar bond payment and nearly collapsed.
Since then, the sector has faced a serious liquidity crisis and many developers have been unable to pay their vendors and construction crews and deliver finished homes to homeowners who have already paid for them.
Chinese homeowners began banding together in July to stage protests and mortgage boycotts. In recent weeks, homeowners have collected documents detailing the number of nationwide mortgage boycotts and project delays, and sent letters to government officials detailing their plight.
Chinese censors have been attempting to purge the web of those crowd-sourced documents and social media posts that talk about the boycotts and project delays. Chinese authorities have also tried to reassure homeowners that their units will be delivered. But the protests and mortgage boycotts spread quickly — both online and offline. According to a crowdsourced listing on GitHub, an online file storage facility Chinese homeowners use to share documents, homeowner groups in at least 100 Chinese cities have threatened or started boycotting their mortgage payments, affecting over 320 housing projects.
Chinese homebuyers usually pool the resources of the whole family to buy a home and have become accustomed to real estate prices only going up. However, this will not happen if the houses remain unfinished.
“It’s a matter of life and death … if their homes become negative assets,” Alfred Wu, an associate professor at the National University of Singapore, told Bloomberg in July.
Widespread mortgage boycotts could exacerbate developers’ liquidity crunch. An estimate by Australia’s bank ANZ says the protests could affect over $220 billion worth of home loans from lenders.
turbulence ahead
China’s central government now faces a dilemma: finding a way to boost consumer confidence in the property market and end the boycotts without bailouting developers outright.
An obvious solution would be for the government to step in and bail out the country’s ailing developers, who could then resume housing projects.
But Houze Song, a fellow at the Paulson Institute, a US-China-focused think tank, wrote in an August note that the solution was politically challenging as Beijing feared it would shift all the costs to the central government. That means it’s up to smaller, local communities.
“Until now, containing the problem has been left to local governments. But they are increasingly … overwhelmed as the problem grows as uncompleted projects are heavily concentrated in cities with weak housing markets and anemic growth,” Song said. “This means that the size of the bailouts required is disproportionate to the fiscal capabilities of these local governments.”
The real estate fair Shimen, where Deng Bibo spoke, presented 19 developers and 10,000 houses. The county government offered coupons worth $442 to potential home buyers and promised to subsidize 50% of the property tax on every house sold. Local officials in other counties have also taken matters into their own hands: officials in Yulin, Guangxi, went door-to-door to tell villagers to buy a total of at least 8,000 houses this year, according to Chinese media.
Responding to the public outcry over Deng’s speech, Shimen County officials told Chinese media that he just wanted to encourage everyone to buy a house – and not to overstate his words.
Song argues that the current mortgage crisis will become “much more significant” than the Evergrande default a year ago.
“The solution requires Beijing to mobilize significant political capital and not just financial capital,” he said.
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