The economic miracle of the People’s Republic had some key features: Ever-rising home prices, surging household #debt, and a real estate sector that broadly contributes to one third of #GDP. Wary of an asset price bubble, #Xi drew three “red lines” last year to restrict financing and force developers to deleverage. A flurry of defaults ensued, including that of #property giant #China Evergrande (3333.HK), forcing bondholders to accept extensions or chase lawsuits. The #revolt on mortgage payments underscores #Beijing’s failure to ensure the losses stop there.
It puts the focus on China’s property buying preferences. New launches are almost always sold before they are built. When heavily indebted developers run out of cash, buyers are left with nothing but a debt obligation. #Evergrande warned of this problem in a letter it wrote in 2020 to local authorities: The company pleaded to be allowed to list a subsidiary to avoid a cash crunch that it said would cause huge financial and social risks, including two million buyers who might #protest over their 600,000-odd unfinished apartments.

https://www.reuters.com/breakingviews/china-property-crisis-enters-dangerous-next-phase-2022-07-14/ #economy #crisis