The Chinese real estate industry has faced several ripple effects after many developers struggled or defaulted on their debt payments. Not only do investors and banks face losses, but constructions of many buildings have also been halted for months if not years and home buyers were not sure when they will eventually receive their homes. For some buildings, the builders have no intention to complete the construction and will just leave them in the unfinished status forever; the Chinese call them the “rotten-tail buildings.”
Unlike the U.S. the home-selling practice where the home buyers sign a contract with the builder when the building is constructed and take out a mortgage when the home is delivered, Chinese buyers take out the mortgage at the time of signing the contract and start the payment right away, even though they don’t have the house.
This presents a big, unfair problems for the home buyers. They are paying mortgages to banks while seeing no progress in the construction of their homes.
Getting no help on these unfinished buildings from the builders, the banks, and the government, many home buyers resolved to a new approach: collectively announcing they would stop their mortgage payment.
On June 30, all home buyers of an unfinished construction project in Jingdezhen City, Jiangxi Province announced jointly on social media that they would stop mortgage payments until the builder resumes construction. This started a wave of home buyers’ stopping their mortgage payments. By June 16, according to NTDTV’s report, home buyers of at least 270 project (a project may consist of multiple buildings) throughout China, including Jiangxi, Anhui, Henan, Hubei, and other provinces, have made similar announcements,
Technically, the unfinished building is a dispute between the home buyers and the real estate developers, not involving the bank. Banks can still hold the buyers accountable for their payments and have the option to freeze and auction buyers’ own personal properties and put them on a bad credit list, if they stop their payment. However, since home purchasing accounts for a significant portion of spending for many Chinese families, these home buyers feel that they have nothing more to lose.
Some home buyers have also found ways to accuse the banks. Some banks didn’t put their payment in proper escrow accounts, some banks released the funds to real estate developers though the construction didn’t reach the required funding stage, and some banks purposely created bad mortgage contracts to steal the home buyers’ money.
This stopping payment wave also spread to real estate developers’ suppliers and contractors. On July 15, an announcement circulated on the Internet that suppliers and contractors in Hubei Province supporting the Evergrande Group decided to stop providing funding and materials and stop doing work if they do not receive Evergrande’s payment up front.
1. SINA, July 13, 2022
2. Epoch Times, July 14, 2022
3. NTDTV, July 16, 2022