Large Numbers of China’s Foreclosed Homes Fail Auction Despite Price Cuts

A view of a complex of unfinished apartment buildings in Xinzheng City in Zhengzhou, China's central Henan province, on June 20, 2023. (PEDRO PARDO/AFP via Getty Images)

The number of foreclosed properties in China is on the rise, but even though auction prices have dropped sharply, many are yet to be sold. Real estate insiders suggest that this results from Chinese people being more prudent about investments than before owing to a lack of confidence in the ongoing recession.

China’s weak economy and high unemployment rate led to a surge in foreclosure auctions, with more and more creditors applying to the courts to force the auction of debtors’ properties to resolve debt disputes such as mortgage defaults or real estate developers’ broken financial chains resulting in undeliverable buildings.

An increasing spike in foreclosed homes persisted over the past five years. Data from Ali Auction House, a Chinese foreclosure platform, show that foreclosed homes increased from 9,000 units in 2017 to 20,000 in 2018, rising to 50,000 in 2019, to more than 120,000 in 2020, and exceeding 168,000 in 2021.

From January to September 2023, according to Chinese real estate industry statistics, the number of foreclosed homes listed for auction nationwide came to 373,000 units, a year-on-year increase of 13.44 percent.

However, even with hefty price reductions, these foreclosed homes are still difficult to sell.

The Jingdong judicial auction platform shows that on Nov. 15, the planned construction of “China’s tallest building,” the landmark Shimao Shenzhen-Hong Kong International Center, saw an abortive auction for the second time, albeit with a decrease of 2.6 billion yuan (about $360 million) from the 13 billion yuan (about $1.823 billion) it fetched in the first bidding in July.

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Another recent example is the fourth auction of Lanzuan Tiancheng, a large urban complex in the Gongshu district of Hangzhou that features boutique retail, high-end businesses, and residential functions and includes 377 houses and four underground parking spaces. The starting bid was approximately 278 million yuan ($39 million), about half the initial price of 542.6 million yuan ($76 million). Despite the bid being almost halved, the auction ultimately failed.

Hangzhou-based real estate seller Meng Wei (a pseudonym) told The Epoch Times on Dec. 24 that this year’s foreclosure market was much weaker than previous years as abortive auctions increased. “Customers are choosing to invest more prudently,“ he said. ”We know of customers who have money in their hands but are hesitant to invest and prefer ‘stability’ to be the main priority.”

Lack of Confidence in Economic Prospects

In the face of weak sales in the real estate market, the Chinese Communist Party has begun to intervene with administrative force. On Oct. 16, the Hangzhou authority released a notice announcing the lifting of purchase restrictions on foreclosed properties in four districts.

Meanwhile, second-hand houses for sale have reduced prices to attract potential buyers.

Despite preferential policies on real estate, the market’s prospects for rebounding appear dim, said Mr. Meng, adding, “Chinese residents lack confidence in the economic prospect under the communist rules and remain conservative in investing money.”

Most Chinese are unwilling to buy a house for renovation. “As opposed to bold endeavors into extra investment, they’d like to maintain the status quo,” Mr. Meng said.

According to Mr. Meng, the main reason for such sentiments among the Chinese is that the stringent zero-COVID policy and years-long lockdowns have brought about insecurity about the future after people experienced confinement in their homes and shortages of food and supplies.

Declined Real Estate Market

China’s real estate market has been in the doldrums for over two years, as evidenced by one of the country’s largest real estate giants, Evergrande, being $300 billion in debt, and another developer, Country Garden, with debts as high as $187 billion.

A woman rides a scooter past the construction site of an Evergrande housing complex in Zhumadian, central China's Henan Province on Sept. 14, 2021. (Jade Gao/AFP via Getty Images)

Official data showed that over 450 real estate-based or real estate-related businesses filed for bankruptcy nationwide in 2022.

China South City, a real estate developer in Shenzhen, announced on Dec. 18 that it failed to pay the interest due in November and other payment obligations were also at risk of default, affected by “significant capital and cash flow constraints due to the deteriorating environment of the Chinese real estate industry.”

Two years ago, the Shenzhen authorities requested state-owned enterprises to inject capital to save the local real estate company, but it seems like it hasn’t worked.

The Japan Center for Economic Research released an economic prediction report on Dec. 18, indicating the Chinese Communist Party’s financial intervention is likely creating an excessive burden on the financial system and leading to weak sales, plummeting prices, and a surge in non-performing loans in the real estate sector.

Such intervention could also cause small- and medium-sized banks to transfer their business risks, the report said.

According to the report, the decline in real estate is the main obstacle to Chinese economic growth.

“China’s real estate, finance, and economy are about to collapse, and it will promote a crisis in the CCP regime and accelerate the downfall of the party, which is what the CCP fears to see,” Lu Ming (a pseudonym), a real estate industry insider in Shenzhen, told The Epoch Times.