If noone would do anything (no boycott), some customers would have to pay mortgage for apartments that won't be finished ever.
With boycott, the blast radius will be bigger, possibly affecting the banking system.
What options do authorities have?
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.
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).
Buying off-plan is common worldwide despite what others are saying in here.
So it's still a loss for those purchasers, but the builders don't get the full payment upfront like described in china.
When you have an over-estimated stock on the market, it's going to drop. Eventually.
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.
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.
But if they don't, forget what I've said.
It’ll be interesting to see what happens, that is for sure!
I’m not sure how big of a problem that really is, but I could see it toppling a number of local banks.
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!).
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.