Here’s a scenario. You buy a pre-construction apartment and start paying the mortgage before it’s complete. The developer halts the project, has defaulted on its debt and it looks like the property may never get built. You hear of buyers elsewhere who have stopped making their loan payments; the government has stepped in to ensure the builders have money and is considering giving mortgage borrowers a temporary holiday. What are you going to do?
This encapsulates the dilemma for the Chinese government in coming to the aid of buyers in stalled housing projects. An effort to short-circuit the spread of mortgage boycotts risks fueling exactly the behavior it is trying to prevent. Authorities had little choice but to do something, given the rising market alarm, and their intervention sparked a relief rally in property and bank stocks Monday. Whether this marks a turning point or merely a pause
