The comments come after embattled developer China Evergrande Group failed to deliver a promised $300 billion restructuring plan over the weekend.
In filing with the Hong Kong Stock Exchange, Evergrande instead said it had “first principles” in place to restructure its foreign debt. It also said that one of its affiliates, Evergrande Group (Nanchang), had been ordered to pay an unnamed amount. The guarantor 7.3 billion yuan ($1.08 billion) for failing to meet its debt obligations.
“Street Signs of Asia,” Shuang Ding, Standard Chartered’s chief economist for Greater China and North Asia, told CNBC.
“This leads to mortgage boycotts and very low appetite on the part of the home buyer, and it is up to the developer because low sales affect liquidity.”
China is facing a mortgage repayment revolution, as homeowners in 22 cities refuse to repay their loans on unfinished housing projects.
“If this problem is not dealt with properly, it will have a profound impact on the economy, including the balance sheet of the government, the balance sheet of banks as well, and households,” Ding said.
Ding said problems in China’s real estate sector threaten the critical foundation of a strong economy: market confidence.
Land sales, which make up a dominant part of regional government revenue, have fallen 30% in the past year.
The economist said Beijing should encircle the issues in the real estate sector and deal with them comprehensively, rather than taking a piecemeal approach.And the In order to avoid mass bankruptcies.
Dan Wang, chief China economist at Hang Seng Bank, said the government could do so by making sure troubled companies had enough money to finish building semi-finished homes or complete a sold-out project.
China’s Politburo suggested last week that the country could miss its 5.5% GDP growth target for this year, while new data showed factory activity in China unexpectedly contracted in July after recovering from the Covid-19 lockdown in June.
While Beijing is taking the property sector crisis seriously, the Evergrande crisis is unlikely to be resolved anytime soon and may not be resolved at all, said Sandra Zhao, associate head of Asia Pacific research at CreditSights.
“I think it will take a long time for investors to gain confidence not only in Evergrande, but in the real estate sector in China as a whole,” Zhao said.
“The real estate market in China is still in a difficult situation, despite all the easing measures and asset values are still declining, especially in the lower tier areas as well. So it will be very difficult to rebuild confidence.”