Chinese Official Goes Viral For Telling People To Buy Multiple Houses Amid Real Estate Crisis

As China’s housing crisis deepens and Chinese homeowners in 100 cities refuse to pay their mortgages, some local government officials are taking matters into their own hands.

Deng Bibo, county party secretary of China’s Hunan province, encouraged everyone to buy multiple houses during his opening speech at a real estate exhibition fair in Shimen, a county of Hunan, on Tuesday.

“I hope that today all comrades will take the initiative in buying property,” Deng said. “Buy one property, then buy a second. If you already bought a second one, then buy a third one. Did you buy a third? Then buy your room.

The speech went viral on Chinese social media as netizens mocked the request. Douyin, the Chinese version of TikTok, has been inundated with videos of Deng’s speech, drawing tens of thousands of user comments on each video. One user sarcastically replied, “It’s as simple as buying vegetables at the vegetable market.” Others questioned where they would get the money to buy multiple houses.

Deng’s speech highlights China’s struggle to contain a growing crisis. For decades, Chinese citizens have funneled their money into real estate, with a large portion of Chinese household wealth, 70%, stored in property. In China, home buyers pay up front for a house. These pre-sale funds essentially offer interest-free loans to property developers, which they have used to rapidly expand construction projects.

But the central government has taken notice of the bubbling real estate market and has sought to rein in developers’ ability to borrow money so easily. When that cash flow was limited, it led to stalled construction projects and half-finished houses. That means many of the houses that people bought and paid for in full are not being built.

This crisis has intensified in recent weeks as homeowners across the country began refusing to pay their mortgages due to stalled projects and unfinished homes.

The country’s real estate problems threaten to upend its social stability: China’s middle class has long relied on property as its main source of wealth, accounting for 25% of the Chinese economy. That means Chinese citizens are seeing their favorite investment medium no longer work for them, at the same time the nation faces its biggest economic slowdown in decades.

nationwide boycotts

China’s debt-fueled real estate market has been mired in turmoil since last year when Evergrande, the country’s most indebted developer with $300bn in liabilities, defaulted on its dollar bond payments and nearly collapsed.

Since then, the sector has faced severe cash shortages and many developers have been unable to pay their suppliers and construction crews, as well as deliver finished apartments to owners who have already paid for them.

Chinese homeowners began banding together in July to organize protests and mortgage boycotts. In recent weeks, homeowners have obtained crowdsourced documents tallying the number of mortgage boycotts and project delays across the country, and have sent letters to government officials detailing their plight.

Chinese censors have tried to cleanse the web of these crowdsourced documents and social media posts that talk about boycotts and project delays. Chinese authorities have also tried to assure homeowners that their units will be delivered. But protests and mortgage boycotts spread rapidly, both online and offline. According to an open sharing list on GitHub, an online file repository that Chinese homeowners have been using to share documents, homeowner groups in at least 100 Chinese cities have threatened or begun boycotting their mortgage payments that affect more than 320 housing projects.

Chinese homebuyers generally pool the resources of the whole family to buy a house and have become accustomed to property prices only going up. However, that will not happen if the houses remain unfinished.

“It’s a matter of life and death … if their homes become negative assets,” Alfred Wu, an associate professor at the National University of Singapore, told Bloomberg in July.

Widespread mortgage boycotts could worsen the liquidity crisis for developers. An estimate from Australian bank ANZ says the protests could affect more than $220 billion in home loans from lenders.

turbulence ahead

China’s central government now faces a dilemma: find a way to boost consumer confidence in the real estate market and end boycotts without bailing out property developers altogether.

An obvious solution would be for the government to step in and save the country’s struggling real estate developers, who could then resume home building projects.

But Houze Song, a fellow at the Paulson Institute, a U.S.- and China-focused think tank, wrote in an August note that this solution is politically challenging, given that Beijing is concerned it will shift all the costs to the central government. That means it depends on the smaller local municipalities.

“Until now, the containment of the problem has been left in the hands of local governments. But they are becoming more overwhelmed as the problem grows, as incomplete projects are highly concentrated in cities with weak real estate markets and anemic growth,” Song said. “This means that the size of the bailouts needed is disproportionately large relative to the fiscal capabilities of these local governments.”

The Shimen Real Estate Exhibition Fair, where Deng Bibo spoke, showcased 19 developers and 10,000 homes. The county government offered coupons valued at $442 to any prospective homebuyer and promised to subsidize 50% of the property tax on any home sold. Local officials in other counties have also taken matters into their own hands: Officials in Yulin, Guangxi, went door-to-door telling villagers to collectively buy at least 8,000 houses this year, according to Chinese media.

In response to the public outcry over Deng’s speech, Shimen County officials told Chinese media that he only meant to encourage everyone to buy a house, and not to analyze his words too much.

Song argues that the current mortgage crisis will become “much more significant” than the Evergrande default a year ago.

“The solution requires Beijing to spend considerable political capital, rather than just financial capital,” he said.

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Source: fortune.com