Chinese authorities have taken action to censor the content posted on social media involving house buyers boycotting mortgage payments.
As the Wall Street Journal reported on July 19, various reports of a wave of mortgage payment boycott widely circulated on Chinese social media last week.
By July 18, house buyers in more than 300 property projects in various places in China had threatened to suspend their payment of housing loans. Their effort is aimed at urging banks to put pressure on developers to complete their unfinished projects.
The projects involve dozens of developers, including those that have defaulted on U.S. dollar bonds, such as China Evergrande Group and Kaisa Group Holdings, as well as some small and medium-sized housing companies.
But censors deleted information about mortgage boycotts and online petitions on China’s social media platforms over the weekend.
Social media posts tracking the incident have disappeared. Some posts on WeChat and Weibo platforms analyzing the suspension of housing loan payments have been deleted.
Seeking to quell the storm of mortgage boycott, the China Banking and Insurance Regulatory Commission also issued a guidance, demanding banks continue to provide credit to eligible housing companies to support the completion of their unfinished projects.
Analysts at research firms and financial institutions have recently tried to assess the scale of potential mortgage defaults associated with the recent campaign of mortgage boycott.
Most analysts see totaling between 150 billion and 370 billion dollars in risky mortgages, a fraction of the roughly 5.7 trillion dollars on the balance sheets of Chinese financial institutions.
The analysts said the risk of defaults could be manageable for large banks, but some smaller lenders could be in trouble due to non-performing loans.
Owen Gallimore is head of credit analysis at Deutsche Bank’s Asia-Pacific trading unit. He said that the buyers’ threat to stop paying off mortgages is certainly a headache, but it was unlikely to put significant pressure on China’s banking system.
He added that the problem could only occur to the struggling developers.
To date, more than 30 Chinese developers have defaulted on U.S. dollar bonds or delayed bond maturities due to the inability to issue new offshore bonds.
According to WSJ, many housing developers in China often pre-sell homes before the projects are fully completed. This pre-sale cash is an important source of financing for developers, allowing them to use the borrowed money for further expansion.
Chinese regulators have ordered that such funds should be kept in regulatory accounts and should only be used to build these pre-sale homes. However, some troubled developers have experienced cash flow problems, leading to delays in construction.
And the troubles in China’s beleaguered real estate sector is renewing fears that the housing crisis could spill over into the banking sector.