Chinese city Zhengzhou sets up bailout fund as mortgage boycott spreads

China’s Zhengzhou city is creating a property developer bailout fund as increasing numbers of homeowners join a nationwide boycott of mortgage payments on unfinished houses.

The bailout, one of the first to deal with the intensifying mortgage revolt in China, will be jointly established by Henan Asset Management and developer Zhengzhou Real Estate Group, according to a statement from the asset manager. The two entities are backed by the financing arms of the local government.

Bailout measures for the property sector are being closely watched by investors after hundreds of thousands of homebuyers threatened in open letters to halt payments, aggravating a property sector crisis that is weighing on China’s economic growth.

Presales, where homebuyers typically take out a mortgage to pay for a property that has not yet been completed, are widespread across China. Anger is growing among buyers who have already paid for homes that developers have failed to deliver because of financial difficulties.

The boycott has spread to more than 300 property projects in China as of Sunday from 200 projects last week, according to a crowdsourced document titled “WeNeedHome”. Evergrande, the world’s most indebted developer, Sunshine City, Sunac and Kaisa are among the developers hit by the boycott.

The action has raised concerns of default risk at banks. Last week, financial regulators rushed to stamp out the broad panic over the system’s financial health by asking banks to disclose the degree of their mortgage exposure. Sixteen listed banks revealed that a small portion of loans were vulnerable to damage.

The Zhengzhou city fund aims to help “revitalize problematic property projects and rescue developers with difficulties”, Henan Asset Management said, without revealing the fund’s size.

Zhengzhou, the capital city of Henan province, is the most exposed to the mortgage revolt out of 91 affected cities, according to data compiled by researchers at E-House China Enterprise Holdings, a real estate services company.

Over the weekend, the country’s banking watchdog urged banks to boost lending to developers to help them finish projects and pledged to step up co-ordination with the central bank and housing regulator to “guarantee the delivery of homes”.

Local governments in Chongqing and Ningbo have also set up working groups to address unfinished projects, according to local media reports. The housing regulator is distributing surveys among homebuyers to assess the situation, according to online questionnaires seen by the Financial Times.

Analysts warned that Beijing needs to show more support to the sector in order to shore up investor confidence.

“We think a stronger indication of central government support will be needed, including liquidity provision for certain projects,” said Rory Green, chief China economist at TS Lombard.

“The halt in mortgage payments is very small in scale, but until a clear stance on defaulters is taken and the spread of deliberate mortgage delinquencies is stopped, caution is needed.”

Beijing is expected to try and soothe homebuyer panic, said Wang Qi, chief executive at fund manager MegaTrust Investment in Hong Kong.

“The real estate industry needs as much support as possible at this point,” said Wang.

“There will be more regulation to protect the homebuyer interest for sure. China can’t afford to lose consumer confidence at this juncture.”

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