Property crisis hurts average Chinese population

The ongoing real estate crisis in China is set to affect economic growth and it has already started hurting the average Chinese population. They are incurring huge losses due to loan repayments and non-payment to workers and small businessmen by property giants. China, where protests are a rare sight, is seeing distressed homebuyers and investors agitating at government offices.12

The middle-class population in China has refused to pay loans on unfinished homes that are a result of a decade-long real estate bubble. Homeowners in Hunan Province said their lives have become “extremely difficult” and they could not afford the monthly mortgage. “We have to take risks out of desperation and follow the path of a mortgage strike,” they wrote to the local officials.3

Zhongrong International Trust has been a major backer of real estate developers in China. Zhongrong is struggling to make payments on several investments.4 Agitated investors were seen protesting outside its office in Beijing. They demanded that Zhongrong must “pay back the money”. Experts asserted that China’s realty upheaval is going to do more damage than what the Chinese government’s data suggest.5

Besides homebuyers, there are small businessmen, suppliers, and workers, who are in distress over non-payment of their due by the property developers. Bill Ye is one such supplier who has lost a majority of his wealth. “A huge number of suppliers for developers, like me, have been deeply trapped by the crisis,” he said. Another supplier Raymond Zheng said “I used to be a successful, private entrepreneur. But now I’m making preparations for the worst – going bankrupt personally and corporately.”6

Labourers and workers working for property development have not been paid their dues by the real estate companies. “They haven’t paid us since Chinese New Year (in January). We are all worried,” said Wang, who worked as a construction labourer at Country Garden’s residential project in Tianjin. Another labourer Wei said he was under pressure. “I have a

wife and kid who’s about to return to school, as well as elderly parents … Workers can’t live on this,” he said.7

A real estate agent from Guangdong Liu Yaonan is not hopeful of getting his dues paid from Country Garden company. “It is unfair for real estate agencies, because once a developer goes through a debt crisis, the system first protects the buyers. Other material dealers, agents and engineers basically cannot get paid,” he said.8

The real estate downturn has impacted China’s healthcare facilities as well. A few months ago, thousands of retired citizens held protests over cuts in government-provided medical insurance as the property crisis has led to fewer land deals, thus a drop in the revenue to local governments.9

Investment advisory manager Gao Fei said the sluggishness of real estate had added to the financial problems of homebuyers in China. “We have seen that many home buyers are affected by a lack of income, and their home buying choices and what they can afford have been impacted in turn,” he said.10

Homebuyers from Zhengzhou have told local authorities that if the developers do not finish building, “all owners will forcibly stop repaying the loans”. One homebuyer named Andy Li said “We don’t even know what happened to the money. How come there’s no money? We will definitely stop paying the mortgage if there are truly no other ways.”11

The Evergrande crisis a few years ago had revealed the emerging cracks in China’s real estate sector. As many as 1.6 million homes buyers had in 2021 become restless and angry due to unwarranted delays from the Evergrande in completing housing projects. It also exposed the flaws in China’s financial system such as unrestrained borrowing and expansion besides corruption and non-transparent decision-making.12 Taking a cue from the Evergrande crisis, experts had warned of a bigger property downturn in China. “If we’re in this downward spiral, then without a credible intervention we are going to see an awful lot of

property developers getting into trouble,” Michael Pettis, a finance professor at Peking University, had said.13 The situation has continued to deteriorate. All major property developers are facing a financial crunch as the unpaid bills have reached a whopping USD 390 billion.14 Now, another real estate giant Country Garden has reported losses even as the possibility of loan default grows bigger. The massive slump in China’s property market could trigger a wider financial crisis. “What is happening in the Chinese property market is really unprecedented,” said Charles Chang, China analyst at Standard & Poor’s.15

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