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  • By The Financial District

Chinese Buyers In 47 Cities Nix Paying Mortgages On Pre-Sold Homes

According to state media reports and international economists, China's real estate crisis is escalating, raising concerns about growing risks in the banking system, and home buyers in dozens of cities are refusing to pay mortgages on unfinished homes, as reported by Laura He for CNN Business.

Photo Insert: Construction in Guangzhou, China

In China, real estate businesses are permitted to sell properties prior to their completion, and clients must begin mortgage payments before taking ownership of the new property. The developers utilize these monies to finance building.

A growing number of projects have been postponed or halted as a result of a liquidity shortage, which resulted in Evergrande's default on its debt last year and the filing of bankruptcy by a number of other enterprises. As a result, buyers may be stuck into a property that is now worth less than the sum they committed to pay.

Analysts are concerned that a payment strike among homebuyers might lead to additional defaults by developers, putting additional pressure on China's banks at a time when the world's second-largest economy is struggling to recover from a COVID-related downturn.

"Presales are the most common way of selling homes in China, so the stakes there are high," Nomura analysts wrote in a Thursday research report.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

At least seven major lenders, including the Industrial and Commercial Bank of China (IDCBF), the China Construction Bank (CICHF), and the Agricultural Bank of China (ACGBF), stated on Thursday that they thought the risks to be manageable and were actively monitoring the situation.

According to Bloomberg, Chinese authorities were holding emergency discussions with banks. Since the end of June, buyers in 18 provinces and 47 cities have ceased making payments, according to several state media reports and statistics provided by the Shanghai-based China Real Estate Information Corporation (CRIC).

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