It’s not just China home buyers, now property suppliers are boycotting loans

BEIJING (BLOOMBERG) – Some suppliers to Chinese real estate developers are refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with home buyers is starting to spread.

Hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers including China Evergrande Group still owe them money, Caixin reported, citing a statement it received from a supplier on Tuesday (July 19).

One group of small businesses and suppliers circulated a letter online saying they will stop repaying debts after Evergrande’s cash crisis left them out of pocket.

“We decided to stop paying all loans and arrears, and advise our peers to decline any requests to be paid on credit or commercial bill,” the group said in the letter dated July 15, which was sent to the developer’s Hubei office. “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply chain crisis.”

Evergrande did not immediately respond to a request for comment. Calls to the media office at the housing authority in Wuhan, the capital of Hubei province, went unanswered on Wednesday morning.

The payments protest is the latest sign of how a movement by home buyers to boycott mortgages on unfinished homes in China is spreading to affect other sectors in the economy.

The development underscores a dilemma for President Xi Jinping’s government as it grapples with who to bail out as the country’s property crisis deepens: Relief for some borrowers could prompt threats of non-payment by a whole host of others. While bending to demands for support could put a strain on state finances, ignoring them might lead to a spiral of defaults as more and more borrowers refuse to meet their obligations.

The mortgage strike, which kicked off late last month in a stalled Evergrande development in Jingdezhen, has rapidly grown to at least 301 projects in about 91 cities. The protests have exacerbated the country’s real estate woes and threaten to derail attempts to revive the market amid an economic slowdown.

The authorities have urged banks to boost lending to builders to help complete the projects, and are also considering giving home owners a grace period on payments, Bloomberg reported this week.

Home buyers’ refusal to pay mortgages stems from the widespread practice in China of selling apartments before they are built. In the past year, over-leveraged Chinese developers have been in crisis mode over debt repayment as funds ran dry, and construction has stopped on more and more projects.

Chinese banks say the risks from the housing loan non-payments are controllable. So far, they have disclosed only 2.1 billion yuan (S$433 million) of credit at risk. Still, GF Securities expects that as much as 2 trillion yuan of mortgages could be impacted by the boycott.

Overall, Chinese banks sit on 38 trillion yuan of outstanding residential mortgages and 13 trillion yuan of loans to the country’s beleaguered developers.