Free to read: Foreclosures Rise in China as Homeowners Struggle to Repay Mortgages
Number of foreclosed homes on the market rose more than 12% in the first half to 202,000
A project that has been abandoned for nearly a decade is now under construction in Zhengzhou, Henan province, Sept. 3, 2023. Photo: VCG
The number of foreclosed homes on the market in China rose more than 12% year-on-year in the first half of 2024, a new report showed, reflecting the growing struggle of homebuyers to repay home loans amid the prolonged real estate slump.
A total of 202,000 foreclosed homes were listed for sale in the first six months of this year, according to a report published Friday by research firm China Real Estate Information Corp. (CRIC).
“Since 2023, people have increasingly failed to keep up with their mortgage payments, and some properties have gone into foreclosure,” a person involved in the nonperforming asset business in the southwestern metropolis of Chongqing told Caixin.
The property downturn and the other headwinds facing China’s economy have put enormous pressure on those who bought homes with a high amount of leverage in previous years, CRIC said in its report, warning that the risk of defaults could grow, further pushing up the supply of foreclosed properties.
“Prices of preowned homes may be hit even harder,” Deng Haozhi, an expert at the Guangzhou Real Estate Trade Association, told Caixin. “If a neighborhood has foreclosed homes with lower sales prices, it will have a direct impact on the prices of existing homes there.”
Another factor contributing to foreclosures is developers failing to repay the money they borrowed to build the property in the first place. Of the foreclosed residential homes listed for sale in the first half, 5,178 were in Zhengzhou, capital of Central China’s Henan province, according to the CRIC report. That number is up 43% from the same period last year.
Zhengzhou is facing a glaring problem where construction projects are often abandoned or put on hold due to developers’ financial difficulties. If the developer fails to make the required payments on these loans, the lender may take possession of the property through the foreclosure process and recoup its losses by selling it in a court-run auction.
Even with the increased supply, the number of actual sales of foreclosed homes has fallen. The transaction rate of such homes was 17% in the first half of 2024, down 7 percentage points from a year earlier, the CRIC report said. The average price of foreclosed homes sold nationwide during the January-June period fell 6.7% to 9,084 yuan ($1,265) per square meter, according to the China Index Academy (CIA).
One of the factors contributing to the price drop was an increased proportion of foreclosed homes being sold through secondary auctions — where the price is lower than the initial auction price — in total sales, according to data that the CIA provided to Caixin.
Considering that the current foreclosure market is sluggish, many banks have begun negotiating with homebuyers to extend their mortgage terms, a banking industry source previously told Caixin.
With the downturn in the property market, some homes may no longer be worth enough to cover the size of the mortgage, so even if the bank forecloses on the home, selling the property might still leave it nursing a loss. “Now that prices have fallen so much, banks don’t dare to actually repossess the homes for foreclosure,” the source said.
Consequently, banks are more willing to negotiate with homebuyers to help them keep making their mortgage payments, the source said.
Banks in several cities, including Beijing, Guangzhou, Chengdu, Zhuhai and Shenzhen, have already allowed borrowers to repay the interest on their mortgages first and then the principal as a way to ease the financial burden of the homeowners.