China Banking and Insurance Regulatory Commission.Photo; VCG

Chinese financial and housing officials have been working closely with major banks to ensure that property developers will deliver apartments to homebuyers, according to the China Banking and Insurance Regulatory Commission (CBIRC). 

After homebuyers from at least 150 unfinished property projects said earlier this week that they would stop mortgage payments, the CBIRC said a mortgage strike would not cause systemic risk to China’s banking system.

Major state-owned banks said in their statements that non-performing mortgage loans related to unfinished property projects accounted for only about 0.01% of all mortgage loans. They said such risks were minor and manageable.

Most Hong Kong-listed Chinese banks have been under pressure since Wednesday. Postal Savings Bank of China lost 12.1% while China Merchants Bank’s shares fell 12.3% between Wednesday and Friday. Industrial and Commercial Bank of China (ICBC), the world’s largest bank, decreased 5%. For comparison, Hang Seng Index, a benchmark of the Hong Kong stock market, eased 2.7% during the period.

In July 2020, financial regulators announced “three red lines” that barred highly-geared property developers from receiving loans for expansion. In the first half, many property developers sold their assets at huge discounts in order to replenish their cash flows and repay debts. From mid-2021, some developers have faced a shortage of funds to continue their construction works.

Many of these unfinished projects are located in central China’s Henan province while the remaining are located in 20 other provinces, including top cities such as Shenzhen, Shanghai and Suzhou, according to media reports.

Early this week, tens of thousands of homebuyers said they would stop paying mortgages as they could not receive their flats. They said banks did not require the property developers to set aside money for the construction works but allowed them to use the funds freely.

On Thursday and Friday, some state media said in their editorials that banks had to take the initiative to prevent the mortgage strike from causing systemic risks to the banking system.

The CBIRC said Thursday it had been aware that some property projects had delayed the schedules to deliver flats to customers. It said it was working closely with the PBoC and the Ministry of Housing and Urban-Rural Development, as well as local governments to ensure that property developers would finish their construction works and deliver the apartments.

On Thursday, state-owned banks said the risks of the mortgage strike were small and manageable.

Agricultural Bank of China said it had offered 3.97 trillion yuan (US$577 billion) of mortgage loans as of the end of last month but only 660 million yuan worth, or 0.017% of them, were non-performing due to property developers’ unfinished projects. ICBC said it had offered 6.36 trillion yuan of mortgage loans as of the end of last month while only 637 million yuan, or 0.01% of them, became non-performing due to the same reason.

Some analysts said the mortgage strike could make potential homebuyers even more hesitant to enter the markets. 

A research report from CITIC Securities pointed out that property sales weakened again this month, showing that the market recovery had not yet become stable while credit risks of Chinese property developers were far from resolved.

It said it expected that more supportive measures would be unveiled for the property sector while there was a lot of room to cut mortgage loan interest rates and lower down payment ratios. It added that it was an urgent task to resolve the unfinished property problems and revive market confidence as soon as possible.

Read: Mortgage boycotts rattle Chinese banks and regulators

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