The shares of China’s publicly traded property developers soared on Monday after the CBIRC instruction, sending the Hang Seng index of mainland property companies rising by 2 per cent in Hong Kong, reversing at least five consecutive days of declines.

If last year was bad for Evergrande, Kaisa and Fantasia, just wait for 2022

“The news is positive to the sector as regulators instruct banks to help solve the problem, even though banks may not want to do it from a commercial perspective,” said CGS-CIMB Securities Limited’s managing director Raymond Cheng. “We expect quite a number of these projects to resume work in the near future after banks release funds from escrow accounts or provide additional funds for construction.”

Three quarters of China’s most heavily indebted developers have missed completion and handover deadlines of residential properties on their project books, leaving thousands of buyers and their life savings in the lurch, according to data collected by South China Morning Post.

“The hole in China’s housing market is much bigger than the bond defaults or declines in developers’ shares that we saw last year,” said Tommy Wu, the lead economist of Oxford Economics. “[The developers] just do not have enough money, and the spillover effect to ordinary people’s lives and banks could be haemorrhaging.”

Sam Chen, who bought a home being built by China South City in eastern Jiangxi province, is one of those who has been drowning in the aftermath of the country’s liquidity tsunami for developers. After signing for the home in July 2020, he has spent two years struggling to pay his 2 million yuan (US$296,000) mortgage at a rate of 7,000 yuan per month.

“What did I do wrong? That is the question that I have constantly asked myself in the past year,” said Chen, who was supposed to be able to move into his 190 square metre condo in the provincial capital Nanchang last September. “Probably ever since the moment I decided to buy this house, my whole life just cannot be right again.”

After construction halted in mid-2021, Chen and hundreds of other homebuyers did not get a direct answer from the developer. News about China South City finally came in January, when it was revealed that the developer begged its creditors to extend two US dollar-denominated bonds totalling US$700 million.

On a recent visit, Chen’s condo sat in a shell of a building among dozens of others, some three kilometre’s walk from the city’s government, with windows and pipes for gas and sewage nowhere to be found.

“Can you believe that a parcel of land that is close to the government can just sit unfinished? I do not know what I can trust nowadays,” Chen said.

Where are the white knights in China’s US$1.7 trillion property sector?

Chen’s hopeless waiting is shared among thousands of homebuyers in China, and China South City is far from the only real estate company that has failed to deliver property on time – the sole objective that Beijing has asked of developers.

Last December, Wang Menghui, then head of the Ministry of Housing and Urban-Rural Development, told the state-run Xinhua News Agency that the property market’s main task for 2022 is to “ensure the home delivery, ensure people’s livelihoods and ensure stability.”

It was the first time ever that “home delivery” was underscored by a top official.

“You would assume that the developers would spend the last penny that they had on building homes, as long as they follow that they should find a way to power through the winter of the sector,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International.

“So it won’t be a surprise to see the list of defaulted developers getting longer these days. But that would be a different story if they do not even have enough money to finish all the homes they sold,” Ng added.

Mortgage boycott in over 80 cities adds to China’s economic woes

China’s property sector went into a tailspin last year, when the central bank stepped up enforcement of its so-called three red lines on debt limits. That choked off bank funding for companies that were already deep in debt.

The choke hold exacerbated problems in a market already beaten down by strict rules enacted in 2017 to rein in runaway prices. As a result, developers could not sell homes to generate cash, causing a rise in bond defaults and missed payments.

Is Evergrande too big to fail?

Twelve months later, Ronshine China Holdings became the 19th developer to default when it failed to pay its interest on an offshore bond while another six had applied for maturity extensions.

Eighteen, or more than 75 per cent of China’s distressed developers, have more than one project with home deliveries that have been delayed for anywhere from six months to more than a year.

The list includes China Evergrande’s residential estates in Xianning in Guangdong province, Jurong in Zhejiang, Nanchang in Jiangxi, Sunac China Holdings’ site in Yunan’s Xishuangbanna prefecture, and Shimao’s homes in the Hainan provincial capital of Haikou, according to interviews with homebuyers.

Chinese homebuyers are now losing patience. Buyers of properties across nearly 100 projects in more than 50 cities have made public letters they sent to banks to inform their lenders that they would no longer be paying their mortgages, according to China Real Estate Information Corporation (CRIC), one of the country’s largest real estate brokers.

Not all the projects are overdue yet, but some of the letters came from people who are awaiting property from projects that missed the home handover date because construction has not fully resumed.

Among all such projects nationwide, 65 per cent of the properties by area belong to the distressed developers, according to a calculation from Shanghai-based E-house China Research and Development Institute.

“The contagion is spreading from these property companies’ liquidity issues to banks and it could end up with more pressures on those already distressed companies, as banks will be extremely cautious with mortgages while potential home seekers may step back to the sidelines in the short term,” said Yan Yuejin, director of the Shanghai-based institution.

“We are seeing a vicious cycle,” Yan added.