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Does China have a mortgage crisis?

Does China have a mortgage crisis?

China / Real Estate

China finds itself embroiled in an economic crisis!

One with reminiscent parallels to the 2008 global financial crash. A crisis marked by an alarming surge in borrower defaults and a deteriorating property market that constitutes a significant portion of the country’s economy.

Escalating Borrower Defaults

Official data reveals a worrying trend: about 8.54 million individuals in China, mainly aged between 18 and 59, are now blacklisted for missing payments on various financial commitments, a steep rise from 5.7 million in early 2020. This increase is largely attributed to the economic impacts of the Covid-19 pandemic, which severely affected economic growth and household incomes. The absence of personal bankruptcy laws in China only intensifies the crisis, imposing stringent restrictions on the economic activities of defaulters.

Deepening Property Market Crisis

The property market, a key pillar of China’s economy, is in dire need of government support to avert further decline.

According to Larry Hu, chief economist at Macquarie, existing home prices in October experienced their most significant drop since 2014!

Furthermore, for the first time in history, outstanding property loans decreased. This downturn reflects a downturn in both demand and supply within the real estate sector.

Profile photo of Weijun (Larry) Hu

Need for Comprehensive Government Measures

Analysts highlight the government’s focus on boosting demand while neglecting a crucial aspect: the credit risk associated with developers. The Macquarie report warns of a potential self-fulfilling confidence crisis, where falling sales and escalating default risks feed into each other, exacerbating the situation. The report points out the rapid increase in credit risks for some large developers, underscoring the urgent need for a government-led intervention.

Financial Sector Under Stress

The financial repercussions of these crises are palpable, with institutions like China Merchants Bank reporting a significant increase in bad loans. The lack of a clear lender of last resort in the real estate sector heightens the risk of a cascading financial impact.

Compounding Challenges

China’s economic challenges became further compounded by a recent pneumonia outbreak, with reported cases surpassing last year’s total. This health crisis, coupled with escalating geopolitical tensions, particularly concerning Taiwan’s upcoming presidential election, adds layers of complexity to the already strained economic and political landscape in the Asia-Pacific region.

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Does China have a mortgage crisis?