Chinese Stop Paying for Unfinished Homes

The lunacy that was China's housing market is coming to an end, or so it seems. With so many rabbits pulled out of hats, one is always wary of one more can kick.

Not satisfied with paying up for newly constructed homes, for years Chinese have paid up for future construction, sometimes years away. They take on mortgages. Some "ponzi" builders finance construction of new units from presales of apartments further into the future. That system is now crashing as homebuyers refuse to pay for homes that have not been built yet.

ZH: China On Verge Of Violent Debt Jubilee As "Disgruntled" Homebuyers Refuse To Pay Their Mortgage

According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

Analysts believe that a drop in home values may be another driver for the refusal to meet mortgage payments. “Investors are concerned about the spread of mortgage payment snubs to buyers, simply due to lower property prices, and the impact on property sales,” Chen wrote.

Homebuyers effectively have an option to buy a home and if they refuse to pay for that option because the price plunges, construction will halt or never begin. Eventually, any system pulling demand forward like the Chinese housing market will run into a blow up. See Here We Go Again, Again: China's Housing Market Freezes for a bunch of links to prior coverage of similar situations over the past decade.