China plans $148bn bailout for developers as mortgage boycott grows

The Chinese government is working on a plan to lend debt-strangled property developers a trillion yuan ($148bn) so they can finish pre-sold apartment complexes amid an unprecedented mortgage repayment boycott among angry off-plan buyers, reports The Financial Times.

China’s central bank the People’s Bank of China will initially lend about 200 billion yuan ($29.7bn) with interest of 1.75% a year, in hopes that it will prime other banks to join in and expand that sum by a factor of five to a trillion yuan.

Work has stalled on as many as 8 million homes, predominantly in China’s third-tier cities, as the country’s debt-fuelled home-building boom has ended in a sector-wide liquidity crunch, the Times said, citing China’s Everbright Bank.

Buyers at more than 300 developments – up from the 200 reported earlier this month – are now refusing to make mortgage repayments, prompting authorities to censor mentions of the issue on social media in an attempt to contain the boycott.

One buyer, James Lu, a sales clerk in Zhengzhou who borrowed $96,500 to buy a $135,125 flat, told the Times that he was sceptical of the plan.

“I can’t see any hope,” he said. “The developer has run out of money and it doesn’t make economic sense to bail the project out.”

The Times said Lu was one of nearly 5,000 buyers at the Kangqiao Nayunxi development who stopped paying their mortgages nine months after construction stopped.

Lu told the newspaper that his monthly repayment of $594 constitutes two-thirds of his family’s household income.

One banker who did not want to be named also expressed scepticism.

“Many unfinished projects have zero or negative value after taking into account their existing debts,” the banker told the Times, adding, “We are not going to touch such projects even if it is politically correct to do so.”

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