Chinese regulators rush to tame investor panic over mortgage boycotts

Chinese regulators are trying to stamp out panic over rising home loan risks at banks as a wave of homeowners join a country-wide mortgage boycott of unfinished houses.

Hundreds of thousands of buyers have halted mortgage payments on more than 200 unfinished property projects in China this week, aggravating a property sector crisis that has dragged down economic growth.

The CSI 300 Banks index fell as much as 3.3 per cent on Thursday to its lowest level since March 2020 on signs that the boycott was gaining traction. Bank share performance was mixed on Friday, with some stocks extending losses despite statements intended to reassure investors.

The China Securities Regulatory Commission, the country’s top securities watchdog, asked banks to disclose the degree of their mortgage exposure in an attempt to address market concerns, according to two banking sources briefed on the matter.

Sixteen listed banks, including state-owned lenders, revealed Rmb2.8bn ($414mn) of loans vulnerable to the mortgage boycott. In co-ordinated filings, the banks emphasised that the loans in question accounted for a small portion of their total outstanding mortgage portfolios, representing less than 0.01 per cent of mortgage liabilities for most of the lenders. Some of the banks did not reveal their numbers.

The state-owned Agricultural Bank of China said it held Rmb660mn of overdue loans on unfinished homes, the largest among banks that disclosed their holdings. The smaller Industrial Bank said Rmb384mn of mortgages on unfinished homes had soured, while Ping An Bank revealed Rmb318mn of affected debts.

“Defaulting on the mortgage is a desperate move by these home buyers to get the banks’ attention and wrestle with the developers,” said Wang Qi, chief executive at fund manager MegaTrust Investment in Hong Kong.

“The biggest challenge for Chinese real estate is consumer confidence. The recent mortgage defaults have only added to the problem,” added Wang. “The government needs to repair the consumer sentiment and business confidence ASAP with more stimulus.”

The country’s banking and insurance watchdog said it would step up co-ordination with the central bank and housing regulator to help local governments complete pending real estate developments.

“From a positive view, such movement brings banks into negotiations to resume construction,” Jefferies analysts wrote on a note on Thursday. “However, investors are concerned about the spread of mortgage payment snubs simply due to lower property prices, and the impact on property sales, which will further deteriorate developers’ cash flow.”

Jefferies estimated that the delayed projects accounted for about 1 per cent of China’s overall banking mortgage balance.

Chinese authorities are expected to hasten to avoid systemic risks to the financial sector or wider economy.

“Household financial positions and social stability are regarded as top priorities for policymakers,” said Betty Wang, senior China economist at Australian lender ANZ.

Solutions could include guiding banks to support unfinished projects, granting longer grace periods for mortgage payments or exempting mortgage interest, according to a third banking source, who was briefed on a meeting between the People’s Bank of China, housing regulators and banks.