Quotes of Chinese developers fell by 7-8% after reports of massive non-payment of borrowers. On the eve it became known that homebuyers at about 100 properties in more than 50 cities across the country refused to pay loans. Most of the non-payments are due to projects that are not completed due to defaults of developers on debt obligations.
Today, shares of major Chinese developers China Vanke and Longfor Group sank by 7% and 8% respectively. Quotes of Country Garden Holdings lost 2%, since the beginning of the week this company has fallen in price by 20%. The sharp decline in quotations was caused by reports of massive refusals by Chinese borrowers to pay mortgage payments in unfinished projects. Yesterday, the Chinese edition of Jiemian News reported that homebuyers in 52 unfinished residential complexes in Wuhan and Xi’an refused to make regular payments.
According to the same Bloomberg, referring to the local agency China Real Estate Information Corp., in the whole country, homebuyers in about 100 projects located in more than 50 Chinese cities refused to pay mortgage loans. Experts note that the number of projects in which buyers refuse to pay is growing every day. “The number of such facilities has doubled over the past three days,” Bloomberg quotes an analyst at Jefferies Financial Group Inc. Shuzhin Chen. — All this negatively affects the mood of buyers, especially properties at the stage of excavation, and slows down sales.” Pending projects account for about 1% of total mortgage loans in China, according to Jefferies. If buyers refuse to pay for all such projects, the amount of bad debt in the Chinese market will increase by 388 billion yuan ($58 billion), which will increase the burden on Chinese banks. Today, Agricultural Bank of China is down 2%, ICBC is down 2.7% and Bank of China is down 1.8%.
Experts attribute a large number of construction projects in progress to ongoing liquidity problems with a number of large developers.
July 3, a major Chinese developer Shimao Group missed $1 billion in international bond payments. Shimao has become the latest Chinese developer to default on its debt obligations. In total, Shimao’s debt on foreign bonds is estimated at $6.1 billion, according to Refinitiv’s calculations, the company is in sixth place among Chinese developers in this indicator. Shimao said they are negotiating with creditors. Difficulties in the Chinese real estate sector began last year when became known about the financial problems of the development holding China Evergrande Group, whose debts exceeded $ 300 billion. Since then, three Chinese developers have already declared default on dollar bonds – Evergrande, Kaisa Group and Sunac China.