BEIJING — China’s real estate market desperately needs a boost in confidence, analysts said, after reports of homebuyers halting mortgage payments rocked bank stocks and raised worries of a systemic crisis.

The size of the mortgages isn’t as worrisome as the impact of the latest events on demand and prices for one of the biggest financial assets in China: residential housing.

“It is critical for policymakers to restore confidence in the market quickly and to circuit-break a potential negative feedback loop,” Goldman Sachs chief China economist Hui Shan and a team said in a report Sunday.

Last week, a spike in reported numbers of homebuyers halting mortgage payments prompted many Chinese banks to announce their low exposure to such loans. But the bank stocks fell. The homebuyers were protesting construction delays for the apartments they’d paid for ahead of completion, as is typical in China.

“If left on its own, more homebuyers may stop paying mortgages, [further] straining property developers’ cash flows, which in turn could lead to more construction delays and project halts,” the Goldman report said.

Uncertainty “dampens households’ desire to buy homes from these developers who arguably need the sales the most,” the analysts said.

After two decades of tremendous growth, China’s property developers have found it harder to stay afloat under Beijing’s crackdown on the companies’ high reliance on debt for growth. Highly indebted developers like Evergrande Group defaulted late last year.

Developers’ persistent financial troubles along with Covid restrictions have delayed construction projects, pushing homebuyers to put their own financial credit at risk by suspending their mortgage payments.

The number of property projects involved more than tripled in a few days to more than 100 as of July 13, according to Jefferies.

That’s a tiny 1% of the total mortgage balance in China, the analysts said.

Across banks covered by Goldman Sachs, average exposure to property including mortgages was just 17%, the firm’s financial services analysts wrote in a report last week.

“We view this mortgage risk to be more about households’ willingness, rather than ability, to make mortgage payments,” the report said, “as developers have dragged out the construction of properties given the difficulties of refinancing.”

But if more homebuyers refuse to pay their mortgages, the poor sentiment would reduce demand — and theoretically prices — in a vicious cycle.

That’s prompted calls to boost confidence.

“In the second half of 2022, there is no hope for a quick rebound in the real estate sector, and it will continue to drag economic growth,” said Gary Ng, senior economist, Natixis CIB Asia Pacific. “The antidote is to boost the confidence of homebuyers and developers once again, but it has proven to be a difficult task.”

Halting mortgage payments is an extreme measure that shouldn’t become a common practice, especially since there are legal processes to address delays in completing apartments, said Qin Gang, deputy director of China real estate research institute ICR.

He cited conversations with industry executives in saying reports of stopped payments are very unfavorable for maintaining the real estate sector’s recovery.

Normally, if developers fail to deliver apartments within the agreed period, homebuyers can apply to terminate their purchase contracts, Goldman Sachs real estate analysts said in a report last week.

The analysts said approval usually takes three months and the developer will need to return the down payment and completed mortgage payments to the homebuyer, including interest. The remaining mortgage payment should go to banks, the report said.

Demand for new houses has already fallen.

A People’s Bank of China quarterly survey found in June that only 16.9% of residents plan to buy a home in the next three months, the lowest since 16.3% in the third quarter of 2016.

Earlier this year, the central bank took a significant step toward boosting the real estate market by lowering the mortgage rate. Many cities have relaxed policies in the last several months to support house purchases.

But since April, real estate sales have fallen 25% or more from last year’s levels, according to Wind Information data.

The average price across 100 Chinese cities has barely risen over the last year, although prices in large cities like Beijing and Shanghai have surged by double-digits, reflecting divergence in demand, according to Wind Information.

Any policy that can assure the delivery of homes would be helpful, said Bruce Pang, chief economist and head of research, Greater China, JLL. He said banks have limited exposure to uncompleted construction projects and have the ability to restore market confidence.

Dai Xianglong, former head of the People’s Bank of China, said Saturday that China would not experience something like the 2007 U.S. “subprime mortgage crisis,” and suggested measures to boost confidence in the real estate industry and stabilize housing prices. That’s according to a state media report.

But even state-backed Securities Times last week raised the specter of systemic financial risk in an article that encouraged local governments and developers to deliver houses on time.

“Credit losses relating to mortgage loans are minimal and the affected balances are small at most Chinese national banks currently,” Harry Hu, senior director at S&P Global Ratings, said in a statement.

“But downside pressure could build if the latest suspension in mortgage repayments by some resident groups in China is not managed well and manifest into system risks,” Hu said.

The official newspaper for China’s banking and insurance regulator on Sunday published similar admonitions and pushed to support delivery of apartments and financing for the real estate industry.

Without the property sector’s drag, China’s GDP could have grown by 3% in the second quarter versus the 0.4% growth reported Friday, according to Goldman Sachs’ analysis.