China mortgage boycott: risk could rise to $438B

China’s banks have detailed 2.11 billion yuan ($312 million) of loans at risk to the increasing number of homebuyers refusing to pay mortgages on unfinished homes, as fears grow over a potential spillover into the wider financial sector. GF Securities Co. expects that as much as 2 trillion yuan of mortgages ($AUD 438.48 billion ) could be impacted by the boycott. 

State-owned Agricultural Bank of China Ltd. said Thursday it held 660 million yuan of overdue loans on unfinished homes, the largest among banks that have disclosed their holdings. Industrial & Commercial Bank of China Ltd., the world’s biggest bank by assets, said it held 637 million yuan of such mortgages, while smaller rival Industrial Bank Co. said 384 million yuan of mortgages on unfinished homes have become delinquent. In most cases, the overdue amount makes up less than 1% of the lender’s total mortgage portfolio. 

China Construction Bank Corp., the nation’s largest mortgage lender, said overall risks are controllable as its exposure to delayed projects is small, without detailing the amount. The two other large state-owned banks, Bank of China Ltd. and Bank of Communications Co., released statements saying the risks were controllable, but also didn’t disclose figures.

The growing number of properties that have seen buyers stop mortgage payments this week has stoked fears around contagion risk to China’s financial system, especially as the real estate sector remains pressured and economic growth has spluttered. The news also comes at a sensitive time, when the social stability is being prioritized ahead of the Communist Party Congress later this year. 

These figures are subject to change as more data becomes available. GF Securities Co. expects that as much as 2 trillion yuan of mortgages ($AUD 438.48 billion ) could be impacted by the boycott. 

Below is a summary of banks that have released details on delinquent loans related to the mortgage boycott. 

Shares of Chinese lenders have underperformed the broader equities market this week. The CSI 300 Banks Index is down 5.4% over the period, compared to a 2.4% drop on the CSI 300 Index.  The refusal to pay mortgages stems from the widespread practice in China of selling homes before they’re built. In the past year, overleveraged Chinese developers have been in crisis mode over debt repayment as funds ran dry, and construction stopped on more and more projects. Property values have also been falling, which may have contributed to the payment halts. 

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