Chinese authorities are telling people to buy more houses amid the property crisis, which will go viral

As China’s property crisis worsens and Chinese homeowners in 100 cities default on their loans, some local government officials are taking matters into their own hands.

Deng Bibo, a county party secretary in China’s Hunan province, encouraged everyone to buy more houses in a speech at a real estate exhibition in Ximen on Tuesday.

“Today, I hope all colleagues will take the lead in buying property,” Deng said. “Buy one property, then buy another. If you pre-order a second, buy a third. I bought a third? Then buy your fourth.

The speech went viral on Chinese social media, as netizens made fun of the question. Duyin, the Chinese version of TikTok, has been flooded with videos of Deng’s speech, attracting tens of thousands of user comments on each video. “It’s as easy as buying vegetables at the vegetable market,” one user quipped. Others asked where they would get the money to buy more houses.

Deng’s speech highlights China’s struggle to contain the growing crisis. For decades, while Chinese citizens have poured their money into real estate, 70% of Chinese household wealth has been concentrated in real estate. Home buyers in China pay upfront for a home. These pre-sale funds provide interest-free loans to property developers, which they use to rapidly expand construction projects.

But the central government took notice of the booming housing market, and tried to control developers’ ability to borrow money more easily. That resulted in construction projects and half-finished houses when cash flow was restricted. That means most of the homes that people have bought and paid for in full are not being built.

The crisis has worsened in recent weeks as homeowners across the country defaulted on their mortgage payments due to stalled projects and unfinished homes.

The country’s real estate crisis threatens to undermine social stability: China’s middle class has long been a major source of wealth based on property, accounting for 25 percent of China’s economy. That means Chinese citizens are seeing their favorite investment avenues no longer work for them — at the same time the country faces its worst economic downturn in decades.

National boycotts

China’s debt-ridden property market has been in turmoil since last year when Evergrande, the country’s most indebted developer, defaulted on a dollar bond and nearly collapsed, with $300 billion in debt.

Since then, the sector has faced serious financial problems, and many developers have not been able to pay their suppliers and construction workers, nor have they been able to deliver completed apartments to homeowners who have already paid.

Chinese homeowners began banding together in July to protest against the mortgage ban. Over the past few weeks, homeowners have been overwhelmed by the number of foreclosures and delays nationwide, and have sent letters to state officials expressing their concerns.

Chinese censors have tried to clean up the website’s reams of documents and social media posts about the boycotts and project delays. Chinese authorities also sought to reassure the owners that their units would be delivered. But the protest and the mortgage boycott spread quickly — online and offline. According to details collected on GitHub, an online file repository used by Chinese homeowners to share documents, a group of homeowners in at least 100 Chinese cities have begun threatening or foreclosing on mortgage payments affecting more than 320 housing projects.

Chinese home buyers are accustomed to pooling the entire family’s wealth together to buy a home, only to see property values ​​increase. That won’t happen if the houses are left unfinished.

“It’s a matter of life and death … if their homes are negative assets,” Alfred Wu, an associate professor at the National University of Singapore, told Bloomberg in July.

A widespread mortgage boycott could exacerbate developers’ cash crunch. An estimate by Australian bank ANZ says the protests could affect more than $220 billion of lenders’ home loans.

Violence ahead

China’s central government now faces a dilemma: find ways to boost consumer confidence in the property market and end the boycotts without completely shutting down property developers.

One obvious solution is for the government to divest into the country’s troubled property developers and then continue housing projects.

But Huze Song, a fellow at the Paulson Institute, a US-China think tank, wrote in an August note that this solution is politically challenging because Beijing is concerned about shifting all costs to the central government. That means up to the small local municipalities.

“Until now, it has been left to local governments to tackle the problem. As the problem grows, incomplete projects are located in cities with weak property markets and anemic growth.” Song said. “This means that the amount of money required is very large given the fiscal capacity of these local governments.”

The Ximen Real Estate Expo, where Deng Bibo spoke, featured 19 developers and 10,000 homes. The county government offered coupons valued at $442 to any home buyer, and promised to subsidize 50% of the property tax on the home sold. Local officials in other provinces have also taken matters into their own hands: officials in Yulin, Guangxi went door-to-door to tell villagers to buy at least 8,000 houses together this year, according to Chinese media.

In response to public protests against Deng’s speech, Shimen County officials told Chinese media that he only wanted to encourage everyone to buy a home — and not to over-scrutinize his speech.

Song argued that the current mortgage crisis would be “more significant” than Evergrande’s default a year ago.

“The solution requires Beijing to invest not only financial capital but also greater political capital,” he said.

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