New data from Citi Group reveals the number of distressed mortgages in China has surged to new all-time-highs.
In a recent note to clients, the investment bank’s China research arm, said it believes during the first half of 2022, over 29% of total property loans in China are in distress. This is around a 5% increase since the end of 2021.
Citi attributes much of distressed debt to mortgages handed over to state owned enterprises by troubled private sector developers such as China Evergrande.
“There is a spillover effect from POE developer defaults, leaving even some SOE developers with financing difficulties and heightened debt default risk,” said the report, as cited by Bloomberg.
The data indicates the ‘nationalization by stealth’ model being implemented by the Chinese Government to save debt-ridden developers from complete collapse is so-far proving to be ineffective in boosting than nation’s $60 trillion dollar property sector.
The tactic has seen the Government opt to facilitate assets sales to state owned enterprises, instead of directly bailing out developers.
For example, the snipped below from Asia Markets shows China Evergrande’s most recent asset sales involving Chinese state owned enterprises.
However, the problem for China is the effective nationalization of troubled developers isn’t stemming a looming mortgage crisis.
Mortgage boycotts
As revealed by Asia Markets, a GitHub repository compiled by Chinese property market observers and investors is tracking a growing number of mortgage boycotts across the country.
The repository has been updated over 1050 times since going live two months ago, after the records were censored for Chinese social media.
It now shows evidence of apartment buyers boycotting their mortgages at 342 incomplete construction projects, up from 325 when first analysed by Asia Markets.
Here’s what S&P said about the mortgage boycotts in August.
“Homebuyers in an under-construction project in Jingde city, in Jiangxi province, collectively decided in June to stop making mortgage payments, complaining that work had been suspended at the site. Soon after, buyers in more than 300 projects across 19 municipalities were reported to be taking part in a mortgage boycott.“
“In a base case where 20% of unfinished projects by distressed developers face delays, Ratings estimates that buyers’ refusal to make mortgage payments could affect 974 billion yuan of such loans. That makes up about 2.5% of China’s mortgage loans, or 0.5% of total loans.
But at the time, S&P was predicting the boycotts would ease. It now appears they are in fact increasing, and Chinese investors stuck with mortgages on seemingly never-to-completed apartments are showing a level of defiance really seen in modern-day China.