Near the end of the year, major banks and local banks in China are accelerating the sale of foreclosed residential and commercial properties to dispose of non-performing loans. The Nikkei Asian Review believes that this trend could further weigh down China’s already sluggish real estate market.
According to mainland media reports, as of November, at least 23 financial institutions have started selling foreclosed mortgaged properties on e-commerce platforms such as Alibaba and JD.com. Since the summer, around 70,000 properties have been listed for sale, exceeding the total number of new homes sold in Shanghai in the entire year of 2024 (59,000 units).
These foreclosed properties, known as “bank-direct homes,” are primarily being sold by regional banks and small financial institutions serving rural areas, including agricultural and construction banks of the big four state-owned banks.
For example, Sichuan Rural Commercial Joint Bank has nearly 25,000 properties listed for sale. Jilin Bank plans to sell 2,000 properties, while Lanzhou Bank is selling 1,750 properties.
The prices of these properties are significantly lower than market prices, with some listings priced 25% to 30% below the market rate.
According to reports from mainland media First Financial, industry insiders have revealed that as the year-end approaches, banks are ramping up the disposal of properties by concentrating on listing bank-direct homes, aiming to revitalize assets.
At the same time, Chinese banks are also accelerating the clearing of non-performing asset packages. Recently, several banks including ICBC, Postal Savings Bank, Ping An Bank, and Construction Bank have successively listed billion-yuan and multi-billion-yuan non-performing asset packages for sale on various asset trading platforms and online trading platforms.
As the year-end regulatory examination approaches, Chinese banks hope to cushion their performance for the annual assessment by proactively disposing of non-performing assets, improving asset structure, and enhancing non-performing loan ratio performance. Small and medium-sized banks, in particular, face dual pressures on asset quality and profitability.
In 2024, China’s banking sector wrote off non-performing assets totaling 3.8 trillion RMB, a nearly 30% surge from 2023. This marks the fifth consecutive year since the COVID-19 pandemic in 2020 where bad debt write-offs exceeded 3 trillion RMB.
Many observers believe that due to oversights in evaluating asset quality in Chinese banks, the non-performing loan ratio is much higher than the official Chinese government statistic of around 1.5%.
Shinichi Seki, a Chinese economy researcher at a Japanese comprehensive research institute, estimates based on financial data from listed companies that by the end of 2024, China’s potential non-performing loan ratio will reach 7.8%.
The Nikkei report points out that as property prices in China have been declining, banks selling real estate at low prices will further depress market valuations. Official Chinese government data shows that in October, prices of new homes in 70 major cities fell by 0.5%, the largest monthly decrease in a year, reflecting a stagnant market.
The sluggish real estate market has led to developers facing financial constraints being reluctant to build new homes. One of the main revenue sources for local governments is selling land use rights to developers. Since the peak in 2021, land revenue has decreased by 60%.
Selling off mortgaged properties may worsen the real estate market, exacerbate financial difficulties for local governments, and raise concerns about potential default on “hidden debts” held by local government financing vehicles.
For ordinary buyers looking to make opportune purchases, lawyers caution that these bank-direct homes carry hidden risks, emphasizing the need for careful consideration before purchasing.
Bai Yaohua, a senior partner at Beijing Deheng (Shanghai) Law Firm and director of the Deheng Institute Shanghai Branch, highlighted in an interview with mainland financial media International Financial News that banks, as professional financial institutions and rational “businessmen,” meticulously design the transaction structures and legal documents for these properties.
He pointed out that bank-direct homes hold legal risks entirely distinct from regular second-hand homes or foreclosed properties, advising bidders to refrain from seeking bargains and instead make informed decisions with a professional approach.
Bai emphasized, “It must be stressed that a bank’s reputation only represents ‘transaction security’ (property transfer and financial security), not ‘property perfection’ (no flaws or burdens).”