Chinese authorities are promising to establish an initial rescue fund of $11.8 billion (80 billion yuan) to offset a looming crisis in the real estate sector, where homebuyers routinely purchase residences from developers’ plans and begin making mortgage payments before the dwellings are finished.
By having customers purchase homes “off plan,” builders can receive construction financing and shift risks — such as costly pandemic-related supply chain delays and bankrupt builders — to the middle-class homebuyers.
For many buyers, the risks seemed worth it. But then China’s COVID-cooled economy strained many family budgets, and draconian lockdowns stalled work on residential projects. As home prices fell, some buyers found themselves paying mortgages on properties worth less than what they had agreed to pay. That was followed by the tightening policies in August 2020, when the central government realized real estate developers’ debt was getting out of control.
Amid all this, many homebuyers announced they would stop making mortgage payments to banks until work resumed on unfinished projects.
Experts say the boycott is a byproduct of two decades of insufficient oversight over a red-hot real estate sector. One economist likened the situation to a Ponzi scheme, a type of fraud that pays existing investors with funds collected from new investors.
Reuters describes the promised rescue fund as the first step in creating a “war chest” of as much as $44 billion…
