China’s realty market crashes!

The real estate crisis has reached its peak
Incomplete constructions
Dwindling house prices
Realty companies default loans
Buyers stop paying installments

China’s real estate crisis has reached its peak. It’s future remains uncertain due to stalled construction and default in home loan payments. The fact that the companies are selling off the properties even in exchange for watermelons and garlic, one must understand how bad the situation is. Chinese President Xi Jinping’s efforts to control property companies, is being blamed for this predicament. With a quarter of China’s GDP coming from the real estate sector, the crisis is having a major impact on the dragon’s economy as well.

China’s realty sector was affected due to various reasons including Corona. As a result, house prices have been on the decline, with last month (June,2022) witnessing steepest fall to a 10-month low. Now, the buyers are in a dilemma whether to buy houses or not, while those who have already purchased, are not willing to pay the pending amount. Many are unwilling to pay for unfinished or stalled housing projects and even the mortgage payments were also stopped.

On the other hand, the companies do not have the money to complete the projects. They are evading loan payments. As a result, China’s realty sector is in dire straits. In fact, the loans being given to the real estate sector is also decreasing which in turn affected construction of the projects. The property prices started dwindling since September last year. Buyers who paid advance amounts, are facing the threat of a huge loss. No new buyers are coming forward. Under these circumstances, houses are being sold in exchange for even watermelons, garlic and other food products. A kilo of watermelons are being pegged at 20 yuan, and houses are sold in exchange of watermelons weighing equivalent to the property price. Yet, none of this yielded desired results and property sales fell by 25 percent. As this situation continues to prevail across China, the loan evasion is on the rise.

While China’s property giant Evergrande Group has already defaulted on its debts, Shanghai-based Shimao Group has recently defaulted on its interest and principal payments worth billions of dollars. It is said to be one of the biggest debt evasion in China. Meanwhile, homebuyers in 22 cities in China are refusing to make payments on unfinished homes. Realty companies are defaulting on loans, constructions are not being completed, and those who have paid advances to buy houses, are burdened by the repayment of home loans.

On the other hand, as house prices are also falling, people are refusing to make payments for properties mortgaged. Due to this, the loan defaults of banks are piling up massively. Experts warn that China’s realty situation will only get worse and debt evasion will increase in the future. Concerns are being expressed that the condition of loans worth about 6 lakh crore dollars is at risk.

What are the reasons

The role of the realty sector in China’s development is crucial. About 70 percent of public wealth is in this sector. After Xi Jinping took over the reins, the real estate sector gained momentum. It has increased by 600 percent in the last 15 years. Real estate firms began issuing international bonds as speculation spread that it could rise further. They started approaching international investors for funding. China considered it dangerous for their country’s economy and tightened the rules.

Several measures have been taken following Xi Jinping’s orders to control property companies. The spread of Covid has also caused the realty market to collapse. In this context, the Chinese leadership stepped into the field and focused on rectifying the situation. The China Banking and Insurance Regulatory Commission (CBIRC) has taken action to this extent. Besides suggesting the banks to increase lending as per the needs of the developers, the CBIRC also stated that the repayment period of the current loans should be extended. Chinese officials have also focused on providing relief to homebuyers by temporarily deferring mortgage payments and allowing local governments to buy the projects which were stopped without completing the construction.