As China’s Economy Stumbles, Homeowners Boycott Mortgage Payments

For decades, buying property was considered a safe investment in China. Now, instead of building a foundation of wealth for the country’s middle class, real estate has become a source of discontent and anger.

In more than 100 cities across China, hundreds of thousands of Chinese homeowners are banding together and refusing to repay loans on unfinished properties, one of the most widespread acts of public defiance in a country where even minor protests are quelled.

The boycotts are part of the fallout from a worsening Chinese economy, slowed by Covid lockdowns, travel restrictions and wavering confidence in the government. The country’s economy is on a path for its slowest growth in decades. Its factories are selling less to the world, and its consumers are spending less at home. On Monday, the government said youth unemployment had reached a record high.

Compounding these financial setbacks are the troubles of a particularly vulnerable sector: real estate.

“Life is extremely difficult, and we can no longer afford the monthly mortgage,” homeowners in China’s central Hunan Province wrote in a letter to local officials in July. “We have to take risks out of desperation and follow the path of a mortgage strike.”

The mortgage rebellions have roiled a property market facing the fallout from a decades-long housing bubble. It has also created unwanted complication for President Xi Jinping, who is expected to coast to a third term as party leader later this year on a message of social stability and continued prosperity in China.

So far, the government has scrambled to limit the attention garnered by the boycotts. After an initial flurry of mortgage strike notices went viral on social media, the government’s internet censors kicked into action. But the influence of the strikes has already begun to spread.

The number of properties where collectives of homeowners have started or threatened to boycott has reached 326 nationwide, according to a crowdsourced list titled “WeNeedHome” on GitHub, an online repository. ANZ Research estimates that the boycotts could affect about $222 billion of home loans sitting on bank balance sheets, or roughly 4 percent of outstanding mortgages.

Protesters gathered at the Zhengzhou branch of China’s central bank last month to demand their money back after the authorities froze withdrawals amid allegations of financial fraud.Credit…Agence France-Presse — Getty Images

Any momentum behind the mortgage strikes would add to a growing number of economic issues facing the Chinese Communist Party.

When a rural bank froze withdrawals in Henan Province in central China, it set off a violent showdown between depositors and security forces. Recent college graduates are struggling to find work with youth unemployment at 20 percent. Small businesses, the biggest provider of jobs, are fighting to survive under the constant threat of Covid-19 lockdowns.

On Tuesday, Chinese Premier Li Keqiang visited the southern technology hub city of Shenzhen and urged a “heightened sense of urgency” for an economic recovery. But the property sector presents a unique set of challenges.

Real estate drives about one-third of China’s economic activity, by some estimates, and housing accounts for about 70 percent of household wealth, making it the most important investment for most Chinese people. In 2020, to address concerns about an overheating property market in which homeowners would often buy apartments before they were built, China started to crack down on excessive borrowing by developers.

Understand the Evergrande Crisis

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Understand the Evergrande Crisis

What is Evergrande? The Evergrande Group, a sprawling Chinese real estate giant, has the distinction of being the world’s most debt-saddled developer. It was founded in 1996 and rode China’s real estate boom that urbanized large swaths of the country, and has millions of apartments in hundreds of cities.

Understand the Evergrande Crisis

How much does it owe? Evergrande has more than $300 billion in financial obligations, hundreds of unfinished residential buildings and angry suppliers who have shut down construction sites. Things got so bad that the company paid its overdue bills with unfinished properties and asked employees to lend it money.

Understand the Evergrande Crisis

How did the company get into financial trouble? For decades, China’s real estate market operated unrestrained. But recently, Beijing started taking measures, including new restrictions on home sales, to tame the sector. Evergrande borrowed heavily as it grew and expanded into new businesses, and eventually ended up with more debt than it could pay off.

Understand the Evergrande Crisis

Why does Evergrande’s fate matter? The company’s collapse would reverberate around the world, affecting global markets, the millions of jobs the company creates and hundreds of thousands of employees. China’s whole residential and commercial real estate market, which drives up to a third of China’s economy, could crumble.

Understand the Evergrande Crisis

How has the Chinese government addressed the crisis? Beijing sat on the sidelines for months as Evergrande neared financial collapse, and has played down the effects that the company’s troubles could have on the economy. In December, the government took a more hands-on approach, when officials from state-backed institutions joined a committee to help restructure the business.

Understand the Evergrande Crisis

Where do things stand with Evergrande now? The company went into default in December, and has said that it will announce its restructuring plan later in July. In its latest setback, Evergrande said its chief executive, Xia Haijun, had resigned over his involvement in a plan to funnel $2 billion into the company’s coffers from one of its subsidiaries.

The move created a cash crunch for many firms that had relied on easy access to debt to keep construction projects humming. As financial strain deepened, Evergrande and other large property developers spiraled into default, and the impact rippled across the industry.

Last month, hundreds of companies that provide services and supplies to the property sector, such as construction firms and landscapers, issued a joint statement to government authorities saying they were “facing a crisis of survival” because they hadn’t been paid for months.

Homeowners of a partly built apartment complex in the central Chinese city of Zhengzhou compared themselves to Rickshaw Boy, or Camel Xiangzhi, a tragic character in Chinese literature whose dream — a rickshaw of his own — is thwarted by corruption and dishonesty.

“We, as thousands of Xiangzis, must throw away those shackles, and let those who robbed us of money and smashed our cars know that Xiangzi is no longer the lamb who is slaughtered by others,” the homeowners wrote in a notice last month to local banks and government officials. If the developers do not finish building, “all owners will forcibly stop repaying the loans” at the end of August, they wrote.

An idle construction site for an Evergrande residential project in Taiyuan, China, last year.Credit…Gilles Sabrié for The New York Times

One of the homeowners who signed the notice was Andy Li.

Mr. Li first purchased a $150,000 apartment in the development in 2019. After making monthly mortgage payments for three years, he learned in February that the apartment wouldn’t be completed in May as promised. In fact, all construction had stopped. The Yufa Group, the developer, told the homeowners that the handover had to be delayed until December.

“We don’t even know what happened to the money. How come there’s no money?” Mr. Li said. “We will definitely stop paying the mortgage if there are truly no other ways.”

The Yufa Group was not immediately available for comment, and a phone call went unanswered. A second listed number had been disconnected. The local government in Zhengzhou has said it would create a bailout fund to provide capital for struggling developers. Last month, the Politburo, China’s top ruling body, said local governments should make sure unfinished buildings are completed.

But Michael Pettis, a professor of finance at Peking University, said the mortgage boycotts are part of a bigger issue: the bursting of a Chinese housing bubble that has been inflated over decades. Even if Chinese authorities provide developers with enough capital, the underlying homes are still overvalued, he said.

“There has been all this fictitious wealth that has been created by surging real estate prices that is just not justified,” Mr. Pettis said. “Those solutions are simply temporary solutions to try to make things less bad in the short term. Ultimately, I don’t think they will succeed.”

For years, property developers never had to worry much about funding. Access to credit was easy, and about 90 percent of new homes were “presold.” Buyers would hand over deposits and make mortgage payments before construction was complete.

That system provided developers with the money they needed to keep building and, until recently, homeowners didn’t complain, since the expectation was that property values in China would continue to rise, as they had for decades.

A property showroom in Haian, Jiangsu Province, last month.Credit…CFOTO/Future Publishing via Getty Images

Times have changed.

In the first half of 2022, sales for China’s 100 biggest property developers fell 50 percent, according to data from China Real Estate Information Corp.

Mr. Li, 29, who works in hotel management, remembers when the market looked much more promising. When he first bought his apartment, he provided a 30 percent down payment with money scraped together from his parents’ retirement funds. Even though he lives in Beijing, he thought the property in Zhengzhou, surrounded by parks and schools, would be a good first step in his plan to return to his hometown and start a family with his wife.

Those plans are now on hold as construction at the Zhengzhou development remains halted. Mr. Li and the other homeowners intend to carry out the boycott if the situation does not improve, he said. In their letter, the homeowners acknowledged the risks.

China’s social credit system punishes infractions — such as failure to repay loans — by limiting an individual’s ability to travel, get their children into school or borrow from banks in the future.

However, in the notice last month, the homeowners said those risks did not outweigh a threat to their survival. “When we feel desperate,” they wrote, “the credit system is a paper tiger for us, a shackle that can be thrown into the trash at any time.”

Claire Fu contributed research.

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