Real estate is the weak link of the Chinese economy
For months, the construction of apartments in China has not progressed. They filed a protest to the promoter, the local government, and exhausted all appeals. Some had to take out consumer loans for current expenses, compounded by mortgage payments in addition to rent. Others postponed getting married or were looking for another school for their children. In early July, in Jingdezhen, southwest of Shanghai, several hundred owners found a new way to protest: they stopped paying the mortgage, which they reported by publishing an open letter.
In a country where unfinished apartments number in the millions, the movement has become widespread. Soon, the money-back strike made headlines in the Chinese media. The authorities reacted immediately, promising a moratorium on payments and rescue funds to help developers complete ongoing projects. One of the most effective protests in recent years in China. If the government has been so reactive, it’s because it’s afraid of a coronavirus pandemic. The compensation strike really crowns a black year for the country’s real estate market.
In September 2021, the world was horrified to discover the dubious actions of the promoter Evergrande, which today has debts of $ 300 billion (291 billion euros). Since then, dozens of others have defaulted on their debt repayment obligations, and thousands of construction sites across China have come to a standstill. For the authorities, the risk of social unrest is significant: in June, hundreds of people demonstrated in front of the local branch of the central bank of China in Zhengzhou, the capital of Henan Province, in the center of the country.
Within a few months, their bank deposits were frozen by several banks in the region, due to the bad debts of the founders. According to experts, the Chinese financial system is stable enough to withstand several bankruptcies of large companies. But the much-publicized credit strike had another effect. In China, developers are mainly financed by the pre-sale of apartments. After this crisis, who would want to risk buying an unfinished apartment from a promoter with weak finances? It is not surprising that there are few buyers now: according to China Real Estate Information Corp., in July, sales of 100 leading developers fell by 39.7% year-on-year.