In China, construction sites are at a standstill and buyers are at their end

Posted on Friday, August 12, 2022 at 07:29

Newly married Mr. Wang was about to move in with his pregnant wife in their new apartment. But the dream is turning into a nightmare with the real estate crisis in China preventing some promoters from completing the work.

To buy the house three years ago, the future father of the 34-year-old took out a loan equivalent to 300,000 euros. But without any progress on the site for about a year, he made a drastic decision: to stop paying monthly installments.

Like him, buyers in dozens of cities are boycotting refunds to put pressure on promoters…themselves are crippled by debt and a lack of cash.

“They told me construction would resume soon,” said Mr. Wang, who did not wish to reveal his full name. “But in the end, no factor came.”

A resident of Beijing, he had intended to move to this purchased accommodation in Wuhan, a large city in central China.

“It was difficult for us to buy this apartment,” he explains. “I put all my savings into it.” In the end, we still have to repay 2 million yuan (300,000 euros) for the loan.”

China has experienced a boom in this sector since the real estate market liberalization in 1998.

Developers managed to expand thanks to bank loans. But their debts have ballooned so much that from 2020 the authorities decided to stop them.

This has reduced financing opportunities for real estate giants such as former Number One Evergrande, which have been struggling for months to pay off mountains of debt.

– ‘Impossible situation’ –

The task is complicated by these boycotts of monthly payments and pressure from the government – concerned with social stability – to deliver apartments as quickly as possible to buyers.

In Wuhan, other future owners told AFP that the delivery date of their accommodations had been pushed back several times by Myhome Real Estate.

They were supposed to move at the end of 2021 but they still didn’t see anything coming. The manufacturer promised this week that it hopes to complete the site by the end of 2022.

New apartments in China are often sold before they are built. So when the developer cannot complete the work, it is the buyer who finds himself damaged.

This has led to a real “crisis of confidence” in the real estate market, estimates a recent report by Andrew Bateson, an analyst at Gavekal Dragonomics.

“I never imagined that could happen,” Hu, a 25-year-old buyer from Wuhan, told AFP of his unfinished home.

He explains that his entire family paid to finance the purchase of his three-room apartment in 2018.

I no longer want to pay,” said Mr. Xue, another buyer. Unable to return to his residence, the 24-year-old is renting an apartment whose rent is severely affecting his finances.

“He is not ignoring the law or contracts. This pressure only puts us in an impossible position.”

– vicious circle –

His family brought a down payment of 800,000 yuan (116 thousand euros). He also took out a loan of 600,000 yuan (87,000 euros).

According to many Wuhan buyers, protests erupted by the city’s disgruntled owners.

In all, more than 300 real estate projects in about 100 cities have been affected by this payment county, according to a collaborative document posted online under the title “WeNeedHome.”

There are many of them in Zhengzhou, a major city in central China where the authorities, however, have set up a fund to help developers so that they can complete the work.

According to Nomura Bank, developers in China have so far only delivered about 60% of pre-sold homes between 2013 and 2020.

The difficulties of Chinese real estate, which accounts for a quarter of the country’s gross domestic product, were exposed last year when Evergrande began struggling to pay its creditors.

Now, the loss of Chinese confidence in the sector could exacerbate the crisis, warns Tommy Wu, an analyst at Oxford Economics.

“The risk of a vicious cycle – falling home sales and prices, growing distress among developers and deteriorating local government finances – is troubling.”

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