Amid the verge of collapse of the mainland real estate market, the number of foreclosed properties in China continues to reach new highs. In the first half of this year, the nationwide listing scale of residential foreclosed homes reached 202,000 units, an increase of 12% compared to the same period last year. The foreclosed housing market in first-tier cities is facing a situation of simultaneous decline in both quantity and price, with Shanghai seeing foreclosed homes sold at 56% of their evaluated value.
Foreclosed properties are real estate auctioned judicially by courts, mainly resulting from overdue commercial loans, private lending disputes, judicial confiscation, and unclaimed properties. According to their types, foreclosed properties can be divided into residential, commercial, industrial, and land categories.
Data from CRIC shows that in the first half of this year, the scale of residential foreclosed homes in China reached 202,000 units, a 12% increase from the same period last year.
A report released by China Index Academy on July 24th indicated that the cumulative quantity of various types of foreclosed properties in the mainland market in the first half of this year reached 382,000 units, with half of them being residential foreclosed homes.
Experts reported by Caixin stated that the mainland housing market is still in a downturn phase, coupled with increased economic pressure. Groups that had used high leverage to purchase houses in previous years are now facing significant repayment pressure, leading to a possible increase in default risks. This implies that the supply scale of residential foreclosed homes in mainland China may continue to rise in the future.
In recent years, some companies and individuals have faced debt pressures. To solve these debt issues, they may choose to auction off their properties through court proceedings. These properties often come at lower prices, making them highly attractive to buyers. As a result, there is no shortage of such properties in the foreclosed housing markets across various regions.
According to a report by Huaxia Times, a Shanghai resident named Cheng Hua (pseudonym) who recently won a foreclosed property auction said, “I won a high-rise residential foreclosed property on Fuquan Road in Changning District, with an area of 72 square meters. I was the only bidder in the second round, with a starting price of 2.76 million yuan, while the court’s appraised value was 4.93 million yuan, close to the average price of second-hand houses in the area. I won at the starting price and enjoyed a 56% discount based on the appraised value, which was a great deal.”
Reports reveal that in the latest residential foreclosed property transactions in Shanghai, from July 23rd to 31st, a total of 28 properties were listed, with 11 properties failing to sell during the first round. The other 17 sold properties had discount rates ranging from 7% to 9%, except for one property sold at a 56% discount.
Industry analysts suggest that low initial prices and high discount rates have become common in the current Shanghai and national foreclosed property markets. Foreclosed properties, once highly sought after, have now become ordinary goods that are less in demand.
Starting from June, weekly data released by an authoritative auction platform in Shanghai showed that half of the foreclosed properties went unsold, while the other half were sold at high discounts.
Zhang Xiangxiang, the business manager of Jipai Technology, told Huaxia Times, “In June, there were properties sold at 56% and 59% discounts, meaning that foreclosed properties that went unsold in the first round had their starting prices reduced to around 56% of their value. Previously, foreclosed properties were easy to sell and often sold at higher prices compared to similar properties in the same area, attracting many bidders. However, since the number of second-hand houses in Shanghai has been increasing since the beginning of the year, along with a general decline in second-hand house prices and the relaxation of purchase restrictions in Shanghai, buyers now have more options, making foreclosed properties somewhat awkward.”
How many second-hand properties are currently listed in Shanghai? According to the latest data released by Zhuge Zhaofang, more than 230,000 second-hand properties are listed in Shanghai, with over 7,000 new listings in recent times.
Data from China Index shows that from January to May 2024, there were 1,066 foreclosed properties in Shanghai (with 612 being residential), with 564 transactions (393 of them residential). The average discount rate was around 75%, with a failure-to-sell rate of approximately 35%.
In the current economic environment, the foreclosed property market is also facing challenges. With an increase in market supply, the clearance rate may continue to decline for a while. This may require more patience and waiting for sellers hoping for quick realization on the foreclosed market.
Zhang Bo, the director of the 58 Anjuke Real Estate Research Institute, previously stated that the stagnation in the property market directly affects the transaction rate of foreclosed properties, and the current foreclosure system makes ordinary people hesitant to purchase foreclosed properties.
Daily People reported on July 29th that even foreclosed properties are becoming difficult to sell. Over the past two years, lawyer Xu Hanlin from Sichuan Mingchui Law Firm’s Criminal Defense Center has witnessed the foreclosure market transition from hot to cold overnight, with the supply-demand relationship reversing.