China's troubled property sector suffered another blow this month when frustrated homebuyers stopped making mortgage payments on units in unfinished projects. The boycott came amid many developers struggling to manage mountains of debt and fears that the crisis could spread to the rest of the Chinese and global economy.
How Big is China's Property Sector?
Colossal. Property and related industries are estimated to contribute as much as a quarter of China's Gross Domestic Product (GDP).
The sector took off after market reforms in 1998. There was a breathtaking construction boom on the back of demand from a growing middle class that saw property as a key family asset and status symbol.
Unfinished homes in China amount to 225 million square metres of space.
Mortgages make up almost 20% of all outstanding loans in China's entire banking system., according to a report by ANZ Research this month.
Why Did it Plunge into Crisis?
As property development flourished, housing prices also soared. This worried the government which launched a crackdown.
The central bank capped the proportion of outstanding property loans to total lending by banks to limit threat to the entire financial system. The Chinese property firms were also hit by the Covid crisis.
Homebuyers' Reaction
In June this year, a new form of protest emerged : the mortgage boycott.
People who had bought units in still-unfinished projects announced that they would stop making payments until construction resumed.
Within a month, the boycott spread to homebuyers in more than 300 projects in 50 cities across China.
The Global Concern
If the property crisis spreads to china's financial system, the shock would be felt far beyond its borders, analysts say. "Should defaults escalate, there could be broad and serious economic and social implications", Fitch Ratings wrote.
The crisis could spread and impact global trade and risk sentiment, the Fed said.
Courtesy. The NIE
My take
A precarious situation that should be prevented from snowballing and affect global sentiments.
Tailpiece.
Today marked the 31st Remembrance Day of Mrs PN Panicker, my Ammachi.
Got up around 6, the chores and was ready by a quarter to 10. Saw the spectacular swearing-in ceremony of the 15th President of India, Smt Draupadi Murmu.
Washing machinex.
The evening chores. The day was, again, marred by frequent power interruptions!
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