It need not be a collective boycott... It can be individual people making individual decisions to not pay the mortgage because they believe that paying is a waste of money. Ie. why pay monthly for a house which will never be completed? You're just pouring money away!

If you don't pay, the property will be taken off you, and probably valued at a high valuation (because the property developer wouldn't want to have their unbuilt properties selling for cents on the dollar). That means you probably will escape bankruptcy or any further debt.

> If you don't pay, the property will be taken off you, and probably valued at a high valuation

which would contradict the assumptions that lead to the decision not to pay.

Therefore, i suspect that the (half-completed) property would indeed be worthless (even to the bank), and is not a suitable form of collateral to recover any debt from. It might be the case where the bank eats the loss - or those who stopped paying the mortgage would be forced to pay (unlikely if this is a widespread issue as it causes social unrest).

My prediction is that the state owned banks would eat the loss, and wait out the confidence crisis - which might take 10 yrs - but then real estate will resume as before as a form of investment (and the cycle begins again).

Pretty common situation that happens in a lot of countries. If the market is OK the developer takes deposit and the apartments and sells them to someone else. If the no one wants to buy the developer goes bankrupt and people who bought lose everything they've paid so far - bank forecloses on the apt which isn't worth much if anything.

It's happening right now in Australia, big builders are going bust leaving homes half finished or not built. Input costs have risen so much on fixed price contracts that there's really no other recourse for them.

Buying off-plan is common worldwide despite what others are saying in here.

The problem in australia is slightly different - the off-the-plan builds are paid pro-rata on the construction, not in one go.

So it's still a loss for those purchasers, but the builders don't get the full payment upfront like described in china.

They don't. That's the point.

When you have an over-estimated stock on the market, it's going to drop. Eventually.

Go along with the law?

People who boycott mortgages get their properties confiscated by court eventually, and if any developments suffer issues government should aid developers to ensure any paid customers get their property done.

But the boycotts are rational, because even the Chinese government thinks that the developers are overextended and may fail. They seem to be taking the most careful, benign option.

Chinese government should offer hard guarantees that all properties would eventually be completed, and at the same time that bad lenders may lose theirs.

In Russia it's quite common occurrence that a very late project by a failed developer is eventually completed and the lenders get their apartments at last, after regional government intervention.

In China it should be even simpler as the money never leave the escrow account. I wonder if there are un-escrow provisions if developer fails to deliver - in theory there should be no risk at all.

Why should they?

I assume they want to have their economy, their real estate market, their developers and their banks mostly intact.

But if they don't, forget what I've said.

The Chinese gov't can have that (at some level) without doing a giant rescue of everyone. If they want it to keep growing, sure they can do that, but the problem is they let it keep growing too much already.

Well, if Chinese government has set up this bubble it is its duty to figure out how to pop it safely.

Ah, well i’m not sure their idea of ‘resolved’ meets any definitely of safety for the parties involved. They also don’t seem like the type that has the same definition of duty you’re likely implying.

It’ll be interesting to see what happens, that is for sure!

boycotting a mortgage on a secured loan with 40% down is a political statement, not economically rational. The numbers are probably minuscule and the “boycott erase story” is itself mostly political.

I think the main point was that these are not secured loans. The developers operate in a ponzi like fashion, so there is nothing to foreclose on and no cash to claw back by the bank.

I’m not sure how big of a problem that really is, but I could see it toppling a number of local banks.

Typically banks release money as construction incurs expenses, not all at once before construction begins. Atleast in the usa.

i think this point is not clear to many people!

Construction companies in the USA (and the west typically) don't get paid up front 100% for the full amount, but is often paid "pro-rata" based on milestones or % completed.

The funds a released by an escrow (which the purchaser and the bank, if it's a mortgage, would choose).

The situation described in china is not like that above - the developers got paid 100% of the cost of the build upfront, by the purchaser. The bank loans the funds to the purchaser for this purpose (at 60% LVR for example).

The bank has the title as collateral - but since the property isn't built, there's no property to sell if it goes bad. It's just the land title. The reason the banks do this is because it's a politically driven mandate - the CCP in the past, wanted more construction, and this is one way to drive risk away from developers (so there'd be more developers!).

I think you can buy land at 50% LTV in the us also.

> not economically rational

It's perfectly economically rational if your equity is less than zero, which can happen when you put 50% down. It just means your valuation of the asset dropped in half.

Two things that come to mind: whip developers and if that doesn't do it, bail them out.