Concern that mortgage boycotts will lead to a rise in souring loans sent a gauge of Chinese bank shares to its lowest level since March 2020.with major banks this week to discuss the mortgage boycotts on concern that more buyers may follow suit, according to people familiar with the matter. Some lenders plan to tighten their mortgage lending requirements in high-risk cities, two of the people said.
“If more home buyers cease payment, the spreading trend will not only threaten the health of the financial system but also create social issues amid the current economic downturn,” Betty Wang, a senior economist at Australia & New Zealand Banking Group, wrote in a note on Thursday. Nomura Holdings said the refusal to pay mortgages stems from the widespread practice in China of selling homes before they’re built. Confidence that projects will be completed has weakened as developers’ cash woes intensified.
The property industry has an oversized impact on the economy. When related sectors like construction and property services are included, real estate accounts for more than a quarter of Chinese economic output, by some estimates. About 70% of household wealth is stored in property, along with 30-40% of bank loan books, while land sales account for 30-40% of local government revenues, according to Pantheon Macroeconomics’ Botham.
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