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China's rural banks are struggling to sell a growing number of foreclosed properties despite offering discounts of up to 30%, highlighting the depth of the country's property downturn. Listings on JD.com show sharp increases in bank-led auctions across several provinces, with many properties failing to attract buyers. Falling home prices, weak sales and past developer defaults have eroded collateral values, while maturing COVID-era loans are adding to distressed assets. Analysts warn that foreclosures could rise sharply in the coming years, increasing pressure on banks and the housing market.
Chinese rural banks are finding it difficult to sell hundreds of foreclosed properties even after offering steep discounts, adding fresh strain to an already weak property market and increasing risks for the financial system and the wider economy. Listings reviewed on JD.com's asset trading platform show a sharp rise in bank-led property auctions, particularly in less-developed regions that have seen deep price corrections. Advertisement
Most of the properties have been put up for sale by local rural banks at discounts of around 20% to 30% compared with prevailing market prices, according to analysts, bankers and real estate agents. Despite this, many auctions have failed to attract buyers, reflecting the extent of the housing downturn and the challenges banks face in recovering loan values.
Property, once considered reliable collateral in China's banking system, has been sharply revalued as home prices continue to fall across the country. Smaller rural lenders, already under pressure from rising bad loans and thinner capital buffers, are moving quickly to sell seized assets to limit losses.
A real estate agent in Dalian, Liaoning province, said banks are now holding an unusually large stock of foreclosed homes, with prices falling to levels that are drawing concern in the market. One example cited was a 160-square-metre apartment auctioned by the Dalian branch of Bank of Jilin for about 1.35 million yuan, compared with a market value of around 2 million yuan at the time. The property failed to sell even after a second auction attempt.
The prolonged property downturn, which began in 2021, has become the longest and deepest on record in China and has weighed heavily on the USD 19 trillion economy. Average home prices during the past year slipped back to levels last seen in 2018, while new home sales by floor area dropped to around half of their peak, returning to volumes last recorded in 2009, based on official data. Several major developers, including Evergrande, have collapsed, and many others have defaulted on debt repayments.
As stress has spread across the economy, the number of properties seized by rural banks and placed on auction has risen sharply. In Gansu province, banks listed over 4,200 properties during the past year, up from about 2,400 a year earlier and fewer than 500 two years before. Sichuan saw nearly 1,900 listings, compared with just a few hundred in each of the previous two years. Similar jumps were recorded in Jilin and Shanxi, based on Reuters calculations using JD.com data.
At a national level, banks have cumulatively listed an estimated 1.35 million properties acquired through loan defaults since mid-2024, according to a UBS report released late last year. Many of these assets stem from failed judicial auctions linked to defaults by homebuyers and developers during 2022 and 2023. Lengthy court processes have left banks holding properties that are difficult to sell, particularly in weaker locations.
Industry executives say buyers are scarce unless prices are extremely attractive or projects are in prime areas. With overall housing transactions already at low levels, banks are competing in an overcrowded resale market.
Pressure is also building from another source. Small business loans issued during the COVID period are now maturing, and many borrowers are struggling to refinance amid a slow economic recovery. Analysts say this is forcing banks to seize additional collateral, adding to a new wave of distressed assets.
Market observers note that policy support for real estate has remained limited, reinforcing the authorities approach of stabilisation rather than stimulus. Analysts argue that banks holding foreclosed homes are unlikely to see prices recover in the near term, making early sales a more practical option to reduce losses.
UBS estimates that the total number of foreclosed properties could rise to about 2.43 million units by 2027, up from roughly 640,000 units during the past year, as non-performing loans increase. While such sales still represent a small share of China's roughly 37 trillion yuan in outstanding mortgages and 25 trillion yuan in household business loans, ratings agencies warn that widespread deep discounts could threaten market stability and draw regulatory intervention.
UBS also expects home prices to continue declining, with further falls projected over the next two years due to persistent oversupply. Analysts at Gavekal Dragonomics believe the current trend may signal the start of a broader cycle of non-performing asset disposals across the banking system, depending on how much strain banks capital positions can absorb.
Source Reuters
5th Jun, 2025
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