real estate Photo:Xinhua

 
Mortgage defaults in some Chinese cities that reportedly involve some 100 yet-to-be delivered property projects call for attention and preparation to handle potential issues, but such defaults, even if they do occur, only account for a tiny portion of the country's home loans, and relevant risks are overall manageable, industry consultancies and experts said on Wednesday.
 
Refusal to pay mortgages in response to delayed deliveries reflects the lack of effective financial supervision of related banks, especially on pre-sales funds, which may have been misappropriated to meet enterprises' debt payments or provide operating funds, they noted, refuting Western media outlets' hype over the potential risks.

More than 100 real estate projects in 18 provinces, including South China's Guangdong Province and Central China's Henan and Hunan provinces, make up a list of projects exposed to mortgage defaults, Tianmu Media based in Hangzhou, East China's Zhejiang Province reported on Wednesday.

Homebuyers have stopped paying their mortgages as property developers delay deliveries due to liquidity difficulties, and the situation is raising public concern about the stability of the real estate industry as well as the bank sector in the second half of this year, according to some media reports.

Some Western media outlets overhyped the issue, alleging that the defaults will pose a threat to social stability. For instance, Bloomberg noted in a report that "the forging of down payments may bring social instability" and "the contagion is spreading to banks."

However, such claims are overblown, industry data and analysis showed.  

As of the end of 2021, delayed deliveries in 24 major cities made up 10 percent of the total in terms of sales areas, China Fund News reported on Wednesday, citing domestic real estate consultancy CRIC China.

Even in the most pessimistic scenario, delayed deliveries would account for only 5-10 percent of the nation's total, according to CRIC China, which put the scale of potential mortgage defaults at 360 billion yuan ($53.48 billion) to 730 billion yuan nationwide. 

This would be a default rate of 0.9-1.9 percent of the nation's total outstanding mortgage loans over the first quarter of 2021. Such an outcome could barely trigger a "systemic impact," the consultancy said, speaking of the risks associated with defaults on mortgages.
 
Such estimates mean that overblown claims prevalent among Western media outlets are unjustified, market watchers said.

Still, experts urged due attention to the reasons behind defaults, which they reckoned necessitates regulatory toughening to safeguard homebuyers' interests.

Homeowners default to prompt banks to put pressure on developers, in order to force them to resume construction as soon as possible and deliver the buildings as planned, said Song Ding, a research fellow at the Shenzhen-based China Development Institute, adding that only then will homeowners start paying their loans again.

"Ensuring on-time delivery is a top priority to address defaults, in order to avoid turning property problems into social problems," Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Wednesday, calling for continued support for the real estate market.

Global Times