The Chinese city of Zhengzhou is launching a bailout fund for real estate developers as more homeowners join a nationwide boycott of mortgage payments for unfinished homes.
The bailout, one of the first to address China’s deepening mortgage revolt, is being launched jointly by Henan Asset Management and developer Zhengzhou Real Estate Group, according to a statement from the asset manager. The two entities are supported by the local government’s funding arms.
Bailouts for the property sector are being closely watched by investors after hundreds of thousands of homebuyers sent open letters threatening payment freezes, deepening a property sector crisis weighing on China’s economic growth.
Pre-sales, where homebuyers typically take out a mortgage to pay for an uncompleted property, are common across China. Anger is growing among buyers who have already paid for homes developers were unable to deliver due to financial difficulties.
The boycott has expanded from 200 projects in the past week to more than 300 real estate projects in China, according to a crowdsourced document titled WeNeedHome. Evergrande, the world’s most indebted developer, Sunshine City, Sunac and Kaisa are among the developers hit by the boycott.
The lawsuit has raised concerns about bank default risk. Last week, financial regulators rushed to quell widespread panic about the financial health of the system by requiring banks to disclose their levels of mortgage risk. Sixteen listed banks indicated that a small proportion of loans were vulnerable.
The Zhengzhou City fund is designed to help “revive troubled real estate projects and rescue struggling developers,” Henan Asset Management said, without disclosing the size of the fund.
Zhengzhou, capital of Henan province, has been hardest hit by the mortgage revolt out of 91 affected cities, according to data compiled by researchers at E-House China Enterprise Holdings, a real estate services company.
Over the weekend, the country’s banking regulator urged banks to increase lending to developers to help them complete projects and vowed to strengthen coordination with the central bank and the housing regulator to “guarantee the delivery of houses.” “.
According to local media reports, local governments in Chongqing and Ningbo have also set up working groups to tackle unfinished projects. According to online questionnaires from the Financial Times, the housing regulator is distributing surveys among homebuyers to assess the situation.
Analysts warned that Beijing must provide more support to the sector to boost investor confidence.
“We believe that a stronger indication of central government support will be needed, including the provision of liquidity for specific projects,” said Rory Green, chief China economist at TS Lombard.
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“The freeze on mortgage payments is very small, but until a clear stance is taken on defaults and the spread of willful mortgage defaults is halted, caution is warranted.”
Beijing is expected to try to ease the homebuyer panic, said Wang Qi, managing director of Hong Kong-based fund manager MegaTrust Investment.
“The real estate industry needs as much support as possible at this point,” Wang said.
“There will certainly be more regulation to protect the interests of homebuyers. China cannot afford to lose consumer confidence at this point.”