Newly married, Mr. Wang was about to move in with his pregnant wife in their new apartment. But the dream turns into a nightmare with the real estate crisis in China that prevents certain promoters from completing the work. To buy the house, three years ago, the 34-year-old father-to-be took out a loan equivalent to 300,000 euros. But without any progress on the site for almost a year, he made a radical decision: stop paying the monthly fees.
Like him, shoppers in dozens of cities are boycotting rebates to put pressure on developers — themselves crippled by debt and short of cash. “I was told that construction would resume soon.“, Mr. Wang, who does not want to reveal his full name, tells AFP. “But in the end, no workers came.A resident of Beijing, he intended to move to this accommodation purchased in Wuhan, a large city in central China. “It was difficult for us to pay for this apartment. I put all my savings into it.“, he explains. “In the end, we still have to repay two million yuan (€300,000) for the loan..”
Only 60% of pre-sold houses are delivered
China has seen a boom in the sector since the liberalization of the real estate market in 1998. Developers have been able to expand thanks to bank loans. But its debt has become so thick that the authorities have decided to put a stop to it as of 2020. This has reduced financing opportunities for real estate giants like former No. 1 Evergrande, which has been struggling for months to pay off mountains of debt. The difficulties of the Chinese real estate sector, which accounts for a quarter of the country’s GDP, became apparent last year when Evergrande began struggling to pay creditors.
According to Nomura Bank, developers in China have so far only delivered around 60% of pre-sold houses between 2013 and 2020. The task is complicated by these monthly payment boycotts and pressure from the government – concerned about social stability. – to deliver apartments to buyers as quickly as possible. In Wuhan, other future owners tell AFP that the promoter Myhome Real Estate has postponed the delivery date of their accommodation several times. They were supposed to move at the end of 2021, but they don’t see anything coming yet. The manufacturer promised this week that it hoped to complete the site by the end of 2022. The zero Covid strategy did not help the situation.
In China, new apartments are usually sold before they are built. So when a developer can’t complete the job, it’s the buyer who gets hurt. This led to a realcrisis of confidencein the real estate market, Andrew Batson, an analyst at Gavekal Dragonomics, estimates in a recent report.
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“I never thought this could happenMr. Hu, a 25-year-old buyer from Wuhan, tells AFP of his still unfinished house. He explains that his entire family paid to finance the 2018 purchase of their three-bedroom apartment. “I don’t want to pay anymoreexplains Mr. Xue, another buyer. Unable to return to his accommodation, the 24-year-old rents an apartment whose rent weighs heavily on his finances. “This is not ignoring the law or contracts. It is that this pressure puts us in an impossible situation.” His family contributed a first payment of 800,000 yuan (€116,000). He also took out a loan of 600,000 yuan (€87,000).
According to several buyers in Wuhan, there have been protests by disgruntled homeowners in the city. In all, more than 300 real estate projects in some 100 cities are affected by these payment boycotts, according to a collaborative paper posted online under the title “WeNeedHome.” Many are in Zhengzhou, a major city in central China, where authorities have, however, set up a fund to help developers complete the work.
Now, the loss of Chinese confidence in the sector could further aggravate the crisis, warns Tommy Wu, an analyst at Oxford Economics. “The danger of a vicious cycle developing – falling house sales and prices, growing distress among developers and deteriorating local government finances – is worrying..”
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