- At the end of June, the owners of unfinished buildings in Jiangxi took the lead in announcing that they would stop repaying their mortgages, and then many victim owners responded. Up to now, more than 100 owners in 15 provinces have issued a statement of “break-off”, and China has set off an unfinished business. floor storm.
- In the past, real estate used high leverage and high turnover, and wandered in the cycle of acquiring land, building houses, collecting money, and repaying debts. In recent years, Beijing has been arrogant to the housing market supervision policy, coupled with the stalemate of China’s economic development, local financial problems, and the chain of real estate funds have been broken, resulting in frequent unfinished buildings across the country.
At the end of June, the owners of unfinished buildings in Jiangxi decided to take the lead and announced that they would stop repaying their mortgages. As soon as the news came out, many victim owners responded. So far, owners of more than 100 construction projects involving 15 provinces have issued “discontinued supply”. Statement, set off a storm of unfinished buildings.
China’s real estate market has been affected by strong official supervision in recent years, and the overall market is weak. However, China’s insistence on the policy of dynamic clearing has slammed the economy, and the sluggish housing market has been brought out by the authorities as a recipe for saving the economy.
China’s housing market has not yet propped up the economy, but instead triggered a storm of unfinished buildings. The reasons behind it are summarized as follows:
The phenomenon of unfinished buildings in various places, the owners take action
On June 30, a “Notice of Compulsory Mortgage Suspension” issued by the owner of the Evergrande Longting Building in Jingdezhen, Jiangxi, circulated on the Internet. They complained that the construction project was suspended in May last year due to the disconnection of funds. If the developer did not resume work by October this year, it would stop paying the loan “to protect its legal rights.”
After the statement spread, the owners of unfinished buildings in many places responded and issued joint statements one after another, refusing to pay loans to banks, hoping to put pressure on local governments and builders to complete the project.
In just half a month, according to the statistics of Hong Kong media Ming Pao, the owners who decided to refuse to pay the loan have spread over 15 provinces and more than 100 construction cases.
There are many provincial capital cities, as well as third- and fourth-tier cities. Xi’an, Changsha, Wuhan, Zhengzhou, etc. are all listed. The real estate companies involved include Evergrande, Xinli, Shimao, etc. According to statistics, the projects involving the most unfinished buildings are still the ones with the most crisis outbreaks in Evergrande.
If the problem of unfinished buildings is not resolved, it will hurt homeowners, housing companies, and banks. If the homeowner does not pay the loan, it may cause legal problems and affect the credit investigation; if the bank does not receive the payment, there will be bad debts; the housing market will continue to be sluggish, and consumers have no confidence.
China’s official media Securities Daily recently published a front-page commentary titled “Beware of the spread of the risk of unfinished property supply suspension”, saying that if the above trend spreads, it may have a negative impact on the housing market, which will be detrimental to construction sales and the stability of the financial system, calling on local governments “Play the dead chess to live”, priority guarantee delivery.
Only GDP is the theory that real estate becomes the best irrigation project
The reason behind this is the frequent rumors of unfinished buildings in China. First of all, it is inseparable from the development of its own “GDP-only theory”. Since the real estate industry is considered to be the locomotive of driving the economy, under the GDP-only theory, local governments are rushing KPIs to meet the GDP growth rate standard, and land policies and related housing markets have become the best irrigation projects, resulting in frequent real estate allocation.
In the past, real estate companies were able to walk in the cycle of acquiring land, building houses, collecting money, and repaying debts with high leverage and high turnover.
With Beijing’s central government’s regulatory policies on the real estate market in recent years (three red lines), coupled with the stalemate of China’s economic development, local finance problems, and real estate funds have broken chains, resulting in frequent unfinished buildings across the country.
The “Three Red Lines” began when the People’s Bank of China and the supervision department of the Ministry of Housing and Urban-Rural Development held a symposium on key real estate companies in August 2020. Three regulatory requirements were put forward, including: the asset-liability ratio excluding advance receipts must not exceed 70%, net debt The ratio shall not be greater than 100%, and the short-term cash debt ratio shall not be less than 1 times.
Such regulation has made it difficult for the housing market to revitalize, and the economy has taken a nosedive.
A related person from a mainland real estate company directly pointed out that the fundamental problem of unfinished buildings in China is “no money”. About half of the company’s overall funds are stuck in the pre-sale fund supervision account, and there is no external financing. Coupled with the downturn in the property market, the capital is extremely tight. This is an important reason for the frequent shutdown of housing companies and the difficulty in resuming work.
Adjusting the “three red lines” is the key to the resurrection of funds
At the end of 2016, the Central Economic Work Conference of the Communist Party of China proposed for the first time that “houses are for living in, not for speculation”. After the central government of Beijing set the tone, the “three red lines” of the real estate market were set.
Now to get rid of the real estate dilemma, the analysis pointed out that the most important thing is to adjust the “three red lines”, which may be the key to activating the flow of funds.
Xu Gao, chief economist of Bank of China Securities, pointed out that the “three red lines” policy triggered a self-reinforcing cycle after the entire real estate downturn. The capital chain of real estate developers has tightened, and credit risks have risen; real estate outsiders have lost confidence in real estate. In this situation, the real estate industry has entered a vicious circle.
Xu Gao said that monetary easing alone cannot solve the problems of the real estate industry in the short term.
He suggested that the size of the fund should be 1 trillion yuan, the government could provide 100 billion yuan, and then raise 900 billion yuan from financial institutions, and use this fund to invest in private real estate companies to become minority shareholders. I gave it a loan, and the common people dared to buy a house.”
Yao Yang, president of the National Development Institute of Peking University, also said that if the real estate industry is to recover in the second half of the year, the “three red lines” policy must be adjusted. “The main reason is that the liquidity of many real estate companies is running out. The common people are rational and worry that companies may go bankrupt.” Therefore, the willingness to buy houses has dropped significantly, and long-term credit has declined.
