Investigation on the loan suspension storm： the owner’s suspension of supply is a helpless move, and the guarantee of the building has become a dilemma in many ways

　　The loan suspension storm has intensified, and many owners who are troubled by unfinished buildings have followed suit.

　　At present, the owners of uncompleted residential flats in many places have issued statements to stop repayment of loans until the related projects are fully resumed, including Henan, Shanxi, Jiangxi, Hunan, Hubei, Guangxi, Shaanxi and other provinces. According to the data of Kerui Research Center, as of July 13th, the number of buildings with compulsory loan suspension issued by owners has reached 106.

　　Respondents believe that the loan suspension storm has a strong demonstration, and it is easy to spread in a large area across the country, undermining business order and adversely affecting the stability of the financial system. It is suggested that the local government actively communicate with the owners in an appropriate and effective way to speed up the implementation of substantive measures to ensure the delivery of the building; At the same time, because most of the owners involved in the uncompleted residential flats are just-needed groups, the suspension of loans does have the realistic constraint that their financial situation deteriorates and they are temporarily unable to pay. It is suggested that financial funds should strengthen the subsidies for the trapped groups, and banks should make appropriate profits based on commercial principles and social responsibilities.

　　The delivery of the building is slow.

　　Owner: It is helpless to stop lending.

　　Although according to the current law, the lending bank signed a mortgage loan contract with the owner himself, and the performance of the contract should not be affected by the developer’s real estate progress. The owner stopped the loan rashly, and the personal credit report would be "stained". However, from the interview with the owner, the owner of the unfinished building knew that issuing a notice of compulsory loan suspension might not solve his actual debt burden, but it was also a desperate move.

　　Zhang Heng (pseudonym), an owner of Wuhan Evergrande Times New Town, told reporters that the community opened for pre-sale in the second half of 2019. At that time, it was agreed to start handing over houses in March 2022 and hand over all houses at the end of June. At present, there are nearly 6,000 community owners. Since Evergrande "thundered" last year, the construction progress of the residential area has been extremely slow. The unit building where the owner’s property is located was capped in the middle of last year, but the progress was still the same until the end of May this year. Since October last year, the owners have collectively made representations to the Housing and Construction Bureau, the Letters and Calls Office and other relevant departments for many times, and so far there has been no obvious substantive progress.

　　Wu Tian (pseudonym), another owner of the community, told reporters that because the property is located in the suburbs of Wuhan, most of the people who buy houses here just need it. Some owners are from Hubei, and people are working in other places, and they are trying to save money to buy the first suite in Wuhan. However, since last year, affected by the epidemic and other factors, some owners have lost their jobs and their incomes have fallen, which is really unable to support the pressure of repaying loans. I have also negotiated with banks before, and some banks have given the answer that they still need to repay the loans on time without receiving the relevant notice.

　　"I sold the house I lived in before and made a down payment. In order to buy the house here, I applied for a mortgage loan and a decoration loan from the bank. The monthly repayment is nearly 7,000 yuan. Now I have no room to live in and rent a house, and the monthly rent is 1,500 yuan. The burden is very heavy. Among the owners, there are many people like me who have to pay the rent, pay the mortgage, and still can’t get the house. " Wu Tian said.

　　Photo courtesy: interviewed owners

　　Many owners pointed out that compulsory loan suspension is not the core appeal of the owners, but a helpless move to exhaust various methods, and the owner’s loan suspension is not not to repay the bank loan, but to wait until the house is handed over. The owner’s core appeal is to complete the building construction as soon as possible, but after nearly a year of negotiations with relevant government departments, the progress of the building has not made obvious substantive progress, and the owner is dissatisfied with the superficial article that the local authorities take the lead in ensuring the delivery of the building.

　　"When the government just set up a special class at the end of last year, we still trusted and promised to postpone the delivery of the building for three months. We also expressed our understanding. However, after the Chinese New Year this year, there was no substantial progress in the construction site and the owners were very anxious." Zhang Heng said.

　　The core reason why there are many unfinished buildings is that some developers are still in a cash flow crisis and unable to pay builders and suppliers. Wu Tian revealed that the building was a hardcover building. When he communicated with the decorator at the beginning of the year, the other party also hoped to advance the money to deliver the decoration project, expecting Evergrande to pay the money later. However, when he communicated again recently, he said that he would not do it, and the more money he advanced, the more he lost.

　　Lack of funds and confidence

　　Baojiaolou has become a multi-faceted dilemma

　　Comprehensive reporters interviewed the owners of uncompleted residential flats, banks, housing enterprises and many other parties, and the loan suspension storm was the result of continuous fermentation intertwined by many factors.

　　Judging from the notice of multi-site loan suspension, the pre-sale funds of housing enterprises seem to be the "fuse" of this storm — — The owner or accused the bank of issuing mortgage loans when the main structure of the building was not capped; Or accuse banks of putting mortgage loans into unregulated accounts in violation of planning; Or criticize the bank for failing to fulfill its obligation to supervise the pre-sale funds.

　　However, two senior people from real estate enterprises told reporters that the pre-sale standards are different in different places. Not all places require the main structure of the real estate to be capped to meet the pre-sale conditions. As long as the developer obtains the pre-sale qualification and announces the mortgage registration, the bank can issue mortgage loans. As for the use of funds in the pre-sale funds supervision account, most places allow developers to withdraw funds in proportion to the project completion progress, and some places will strictly limit the scope of application of the funds withdrawn by developers, such as only giving priority to the project construction, etc. Generally, the local housing and construction departments bear the main responsibility for account supervision, and banks operate the transfer instructions according to documents such as certificates issued by relevant departments. However, because there are many capital transactions involved, it is not excluded that there are gray operations between developers and local departments and banks.

　　Yan Yuejin, the research director of the think tank center of Yiju Research Institute, pointed out that the supervision of pre-sale funds is not in place, which will lead to the vacancy of housing construction funds, thus aggravating the problem of unfinished business. In the case of strict implementation of the supervision policy of pre-sale funds, it is not easy to appear unfinished, because the supervision part of pre-sale funds can theoretically ensure the completion of the project on schedule.

　　At present, it is not clear whether there are irregularities in the supervision policies of mortgage loan issuance and pre-sale funds in various places. But since last year, some places have strengthened the supervision of pre-sale funds of commercial housing. The relevant person in charge of the Beijing Municipal Commission of Housing and Urban-Rural Development pointed out in November last year that since last year, some projects of Taihe and Evergrande Group in Beijing have experienced tight capital chain, shutdown and misappropriation of pre-sale funds, reflecting the illegal use of pre-sale funds in some projects.

　　In November 2021, the Beijing Municipal Commission of Housing and Urban-Rural Development issued the Measures for the Supervision and Management of Pre-sale Funds of Commercial Houses in Beijing (revised in 2021) (hereinafter referred to as the Measures), which clarified that before banks pay pre-sale funds, local authorities should conduct on-site surveys or verify the progress of the project through the municipal engineering quality risk classification control platform, further strengthening the supervision responsibility of the territory in the management of fund withdrawal.

　　The "Measures" specifically stipulates that when there are major risks in the pre-sale project, the district housing and urban-rural construction department should fully take over the pre-sale fund supervision account or establish a government supervision account, implement closed management to ensure the safety of funds, and give priority to engineering construction.

　　In the research report, Kerui Research Center emphasized that the storm appeared to be a contradiction between banks and real estate owners, but in fact it was the real estate purchased by the owners. Due to the developer’s financial problems, it faced the risk of shutdown or delayed delivery, and some of them were even on the verge of unfinished business. In order to protect their legitimate rights and interests, the owners have to "cut off the supply" to protect themselves, hoping that the government will attach great importance to it.

　　Respondents told reporters that the reason for the mortgage suspension storm is the lack of funds and confidence: First, the progress of ensuring the delivery of houses is slow, including the slow resolution of risks of problem housing enterprises, the significant decline in sales after the accident, and the obvious shortage of available resources of enterprises. The root cause of the problem of guaranteed housing is that the problem housing enterprises switch from the original fund pool model to the project’s own hematopoietic model, and the fund gap of guaranteed housing projects is large, so it is difficult to solve it by relying on their own sales returns without external resources injection. A vicious circle has been formed, that is, the more housing enterprises need money, the greater the decline in sales, the greater the difficulty of financing, the greater the pressure of ensuring the delivery of houses, and the further slowdown in construction and construction. Second, the lack of confidence of buyers, the suspension of loans forced to guarantee the delivery of houses, and the appeal was reasonable.

　　Financial risks are generally controllable.

　　Derivative risk should not be underestimated

　　From the perspective of laws and regulations, every party in this loan suspension storm will face risks, and the financial risks it may cause have also become the focus of market attention.

　　According to the "Measures", if development enterprises and regulatory banks use pre-sale funds in violation of regulations, resulting in unfinished projects and serious consequences against the legitimate rights and interests of buyers, the competent departments of various industries will transfer them to the public security departments for execution, and if the case constitutes a crime, criminal responsibility will be investigated according to law.

　　Some owners who stop lending face the risk of dishonesty. A legal person told reporters that if there is no fault in the supervision bank after investigation, if the buyer fails to repay the loan after losing the case, it will be included in the blacklist of dishonesty. If the buyer not only said that he would stop lending, but actually failed to repay the loan for several months, if the buyer fails to repay the loan after losing the case, he will be included in the blacklist of dishonesty.

　　From the perspective of financial risks, although the loan suspension storm only occurred in individual projects in individual cities, Kerui Research Center pointed out that from the current situation that the number of buildings with compulsory loan suspension is increasing day by day, there is still a steady expansion trend in the follow-up, which should attract the attention of relevant departments. Regardless of whether the owner’s unilateral default behavior is legally tenable, it is easy to cause a follow-up effect and financial risks in the short term simply from the harm of public panic and the continuous spread of negative emotions caused by the incident.

　　Sun Tianqi, director of the Financial Stability Bureau of the People’s Bank of China, said at the press conference of the State Council Office on July 13 that China’s financial risks are convergent and generally controllable, and 99% of the banking assets are within the safe boundary. At the same time, he stressed that financial management departments must be highly vigilant against all kinds of financial risks, further lay a good foundation for preventing and defusing financial risks, and firmly hold the bottom line that systemic financial risks will not occur.

　　Respondents pointed out that mortgage suspension may also dampen residents’ purchase behavior, delay the return of housing sales to normal state, increase the operating pressure of real estate chain, and drag down the steady growth effect to some extent.

　　Calm down the loan suspension as soon as possible

　　It also needs active communication from local governments.

　　The core appeal of the owner is to guarantee the delivery of the building. In the opinion of many experts, whether the local government and relevant departments can communicate and deal with the work as soon as possible is the key to quell the loan suspension and eliminate the derivative effects.

　　The root of calming down the loan suspension as soon as possible in the short term lies in the need for local governments to actively communicate with owners in an appropriate way. Respondents suggested to reporters that it is necessary to compact the main responsibility of local governments to guarantee the delivery of houses, provide incremental resources, adopt cooperative construction and project transfer to stabilize the confidence of consumers, ensure the smooth implementation of legal and effective purchase contracts, and promote the stopped projects to resume work as soon as possible, and promise to guarantee the delivery of houses within a certain period of time for overdue delivery projects.

　　At the same time, because most of the owners of uncompleted residential flats involved in the loan suspension storm in the country are just in need, many of them are facing difficulties such as unemployment and income decline under the current economic pressure, and they do have debt repayment pressure. It is suggested that the financial department and banks work together to alleviate the debt repayment pressure of trapped individuals, but the premise of this move is that they cannot break the foundation of commercial operation of banks that borrow and repay money.

　　An economic policy expert in Beijing, who did not want to be named, told reporters that we can refer to foreign treatment methods, and commercial banks are not required to directly make profits free of charge, but financial funds are involved in giving appropriate subsidies to the trapped groups, which can also stimulate consumption. He stressed that financial activities have their own market rules, and mortgage is only one of many debts. If mortgage is not repaid, other debts are easy to follow. Therefore, commercial banks need to follow commercial rules when they participate in the rescue.

　　Another financial analyst suggested to reporters that the loan suspension incident should be handled steadily. For buyers’ reasonable demand for loan suspension, the repayment is allowed to be suspended in stages, the bank will not confirm the default and the risk will not be downgraded for the time being, and the personal side will not be included in the credit information, so the problem of loan interest during the loan suspension period will be carefully handled.

　　In addition, further increase financial support. Financial institutions contracted the financing of problem housing enterprises in the early stage, and there was no reasonable compliance means to support the funding gap of Baojiao Building. To solve the problem of "guaranteed house delivery", incremental capital injection is needed, and the insurance of problem housing enterprises needs stable expectation of continuous operation. The policies that can be adopted include but are not limited to: promoting the issuance of REITs for commercial properties, relaxing the increase of listed housing enterprises with the participation of major shareholders, building a stable fund or guarantee fund for guaranteed house delivery to construction enterprises in the form of preferential creditor’s rights, promoting the supplementary mortgage loan (PSL) model, encouraging local governments to buy the assets of problem housing enterprises "commercial houses into public rental houses" and withdrawing REITs, and promoting AMC policy acquisition under the principle of guaranteed profit.