China’s homebuyers are running out of patience with the real estate

BEIJING — China’s real estate market desperately needs a boost in confidence, analysts said, after reports of homebuyers halting mortgage payments rocked bank stocks and raised worries of a systemic crisis.

The size of the mortgages isn’t as worrisome as the impact of the latest events on demand and prices for one of the biggest financial assets in China: residential housing.

“It is critical for policymakers to restore confidence in the market quickly and to circuit-break a potential negative feedback loop,” Goldman Sachs chief China economist Hui Shan and a team said in a report Sunday.

Last week, a spike in reported numbers of homebuyers halting mortgage payments prompted many Chinese banks to announce their low exposure to such loans. But the bank stocks fell. The homebuyers were protesting construction delays for the apartments they’d paid for ahead of completion, as is typical in China.

“If left on its own, more homebuyers may stop paying mortgages, [further] straining property developers’ cash flows, which in turn could lead to more construction delays and project halts,” the Goldman report said.

Uncertainty “dampens households’ desire to buy homes from these developers who arguably need the sales the most,” the analysts said.

After two decades of tremendous growth, China’s property developers have found it harder to stay afloat under Beijing’s crackdown on the companies’ high reliance on debt for growth. Highly indebted developers like Evergrande Group defaulted late last year.

Developers’ persistent financial troubles along with Covid restrictions have delayed construction projects, pushing homebuyers to put their own financial credit at risk by suspending their mortgage payments.

The number of property projects involved more than tripled in a few days to more than 100 as of July 13, according to Jefferies.

That’s a tiny 1% of the total mortgage balance in China, the analysts said.

Across banks covered by Goldman Sachs, average exposure to property including mortgages was just 17%, the firm’s financial services analysts wrote in a report last week.

“We view this mortgage risk to be more about households’ willingness, rather than ability, to make mortgage payments,” the report said, “as developers have dragged out the construction of properties given the difficulties of refinancing.”

But if more homebuyers refuse to pay their mortgages, the poor sentiment would reduce demand — and theoretically prices — in a vicious cycle.

That’s prompted calls to boost confidence.

“In the second half of 2022, there is no hope for a quick rebound in the real estate sector, and it will continue to drag economic growth,” said Gary Ng, senior economist, Natixis CIB Asia Pacific. “The antidote is to boost…