China: overwhelmed by delays, owners strike monthly payments

Owners in China of housing under construction, whose work is unfinished due to the precarious situation of certain promoters, refuse to pay their monthly payments, at the risk of further weakening a real estate sector in crisis.

China: overwhelmed by delays, owners strike monthly payments

Owners in China of housing under construction, whose work is unfinished due to the precarious situation of certain promoters, refuse to pay their monthly payments, at the risk of further weakening a real estate sector in crisis.

Real estate has long been a mainstay of growth in China, boosted by rising living standards and a buying spree, in a country where owning property is often a prerequisite for marriage. .

But the uncertainties linked to COVID-19, which penalize activity and weigh on household income, are cooling buyers, at a time when many real estate groups in China are in financial difficulty.

Due to a lack of cash, some developers are unable to continue their work and hand over properties sold before construction in a timely manner.

As a result, property owners in at least a hundred real estate projects in China are now refusing to pay their monthly payments, according to data from the firm specializing in real estate CRIC published on Wednesday.

These sites are spread over 50 different cities.

Some are experiencing significant delays, while in other cases the owners had still not received the keys by the date originally scheduled.

“The list (of projects concerned) has doubled in the last three days”, underline analysts from the American investment bank Jefferies, who estimate the shortfall for promoters at 388 billion yuan (57.5 billion euros). ).

Pre-sales are the most common way in China to sell real estate.

Real estate and construction weigh more than a quarter of China's GDP and had served as the engine of the post-pandemic recovery in 2020.

But to reduce the indebtedness of the sector, Beijing has tightened the conditions of access to credit for promoters. Many groups therefore find themselves short of cash, including the number one in the sector, Evergrande.

The poor financial health of the real estate champion in China is in turn penalizing its competitors, with buyers showing themselves to be more and more reluctant to invest in real estate.

In this context, the monthly payment strike is “particularly worrying”, because it threatens to extend the contagion from the real estate sector to the financial system, warns the bank Nomura on Thursday.

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