Another black swan launches into the Chinese sky
Is Chinese Jingle Mail coming?
Do you remember Jingle Mail. No, I’m not talking about Christmas here. I’m talking about the thing that triggered the Global Financial Crisis.
Jingle Mail was an American phenomenon. The mortgage market works differently there. If you can’t pay your mortgage, you can just send in the keys and walk away. It’s your problem now, Mr Banker.
And that’s what a lot of Americans did. When the sub-prime crisis blew up, people who were facing negative equity and who had no way to pay their mortgage, just sent in the keys and walked away.
Banks ended up with the bad debts, and the rest is history.
Now, it seems, it’s coming to China.
But in true Chinese style, it’s more of a collective thing, with buyers going on strike:
More and more home buyers across China refuse to pay mortgages as the properties they purchased have been left unfinished amid the liquidity crunch in the real estate sector.
As of July 12, home buyers of more than 100 property projects across provinces including Hubei, Henan, Shandong, Jiangxi, Jiangsu, Hunan and Shaanxi had issued statements saying that they refuse to pay mortgage loans as the properties they purchased have been left unfinished, according to a report to The 21st Century Business Herald.
Of the projects, more than 30 are in central China’s Henan province and many are in the provinces of Hunan and Hubei, according to a report by Caixin.
The construction of the projects had been in suspension due to the developers’ liquidity difficulties, which means the home deliveries would be delayed, forcing them to take actions to safeguard their legitimate rights, the homebuyers said.
The developers of the property projects involved include China Evergrande Group, Sinic Holdings, Greenland Holdings, Sunac China, Kangqiao Group, Xinyuan Group, Sichuan Languang Development Co, Zensun Group and Myhome Real Estate Development Group, etc.
For instance, homebuyers of a project developed by property developer Times China in Wuhan, capital city of Central China’s Hubei province, said in a joint statement on July 7 that they had made several attempts to communicate with the developer and safeguard their legitimate rights, but failed to make any progress in the issue and the construction remained in suspension.
“If the construction of the project does not resume by August 1, we will all stop paying mortgages,” the statement reads.
Refusal to pay mortgages in response to delayed deliveries reflects the lack of effective financial supervision of related banks, especially on pre-sales funds, which may have been misappropriated to meet property developers’ debt payments or provide operating funds, they noted.
This will be interesting to watch.
It seems to be isolated for now, but if it spreads, things could quickly go pear-shaped for the Chinese financial sector.
And if that happens, all hell brakes loose.
It’s a black-swan risk for now, but if you get enough swans in the air, it’s only a matter of time til one of them lands.
JG.