【Epoch Times News, September 18, 2024】China’s economy is in decline, and the real estate market continues to struggle as the traditional Chinese property market peak season, known as “Golden September,” has passed halfway with no signs of improvement in transactions. The number of homebuyers voluntarily defaulting on mortgage payments is surging. Compared to immediately proceeding towards foreclosure in the past, banks and courts are now gradually adopting a “cooling-off” approach. Can this “cooling-off” method solve the problem? When will the Chinese housing market hit rock bottom?
Economic experts believe that the Chinese Communist Party is employing a strategy of “delaying change,” waiting for an opportune moment to let these negative factors dissipate. It is expected that after the variable of the U.S. presidential election is resolved, China may introduce new stimulating measures. However, it is likely to take a long time for the real estate market to stabilize, as there are still no signals indicating a bottoming out of housing prices.
According to a report by the nationally circulated financial daily, “Shanghai Securities News,” on August 15, 2024, data released by the real estate market research institution “Ke” showed that in the first half of 2024, the number of nationwide residential foreclosure properties exceeded 202,000, with a year-on-year increase of over 12%. Second-tier cities demonstrated even more pronounced increases, with cities like Zhengzhou, Xiamen, and Suzhou experiencing over a 40% surge in foreclosed properties compared to the previous year.
Several Chinese institutions released data on the number of foreclosed properties sold in the first half of this year, with a total of 240,636 properties being auctioned off through court enforcement in the past six months, over half of which were residential properties, totaling 145,200 properties.
Nevertheless, according to monitoring data from the China Securities Index, only 52,000 foreclosed properties were actually sold in the first half of this year, falling far short of the rapid influx of properties.
An Hua (pseudonym), a branch manager at a city commercial bank responsible for handling non-performing loans, told local media that since the end of 2023, the number of delinquent mortgages at his branch has drastically increased, with over 50 cases accumulated, five times more than in previous years. Additionally, this year, the value of collateral for some mortgages has already fallen below the principal amount of the loan.
Facing the challenge of swiftly increasing non-performing loans, banks and courts are increasingly opting for a “cooling-off” approach towards these foreclosed properties. Chen Songxing, a part-time professor at the National Development and Mainland China Research Institute of the Chinese Culture University, explained to Epoch Times that banks anticipate future supply interruptions to be more frequent, leading to prolonged foreclosure processes, requiring sufficient capital to write off bad debt. Therefore, from a technical perspective, expediting the process to obtain cash is a more practical approach.
However, when banks and courts have dedicated departments handling foreclosed properties, the rapid increase in the number of cases can lead to bottlenecks and delays in auctions, prompting what is described as a form of “cooling-off.”
Chen Songxing also highlighted the need to evaluate individual cases, as direct sales of real estate properties are generally not allowed under legal procedures.
Regarding the notifications issued by the China Banking and Insurance Regulatory Commission and the Ministry of Housing and Urban-Rural Development, instructing local governments to fully utilize their coordinating roles by including qualified real estate projects in the financing whitelist and providing these projects with the opportunity to re-apply after improvements to achieve a policy of “lend as much as possible.”
Chen Songxing admitted that the pressure on the banking industry is extremely heavy, as they not only need to quickly address unfinished properties but also provide financing for projects on the “real estate whitelist” mandated by the central government. However, the recovery of these funds is expected to be challenging.
“So, all signs indicate that the current lack of consumer spending and supply interruptions caused by the real estate bubble in China represent a significant warning of potential bank crises,” he added.
Wang Guochen, a research assistant at the Taiwan Institute of China’s Economy, stated that in his observation, the real estate challenges in China stem from two major issues. Firstly, people are unwilling to consume as they witness continued property value declines, ongoing issues with property developers, and the risk of purchasing pre-sold properties that might be left unfinished. This hesitancy to spend results in a drop in property purchases.
The second issue is the lack of purchasing power due to economic decline, job cuts, and salary reductions. More people are unable to afford homes, leading to a surge in foreclosed properties and a continuous increase in non-performing real estate loans.
Wang believed that the combination of these two factors would continue to heavily impact the mainland China housing market. Since a weak real estate market directly affects the mainland China economy, it creates a vicious cycle of poverty and economic decline.
Taiwanese financial expert Huang Shicong told Epoch Times that due to the lack of suitable buyers, as the current real estate market in China is quite subdued, even if these foreclosed properties or those that have already ceased construction are put on the market, there is insufficient demand to support their sale.
“Is ‘cooling-off’ beneficial?” When asked about this, Chen Songxing explained that handling bad debts or terminating supplies immediately may lead to immediate social problems. As property prices have already dropped to levels seen in 2016 or 2017, many people cannot afford their mortgages. Executing foreclosures would force these individuals to give up their homes, which could potentially lead to social unrest.
In response, Huang Shicong suggested that while the public reluctance to act is seemingly due to a fear of social issues arising from foreclosures, the reality is that they are unable to handle these problems effectively. Therefore, the “cooling-off” approach is aimed at avoiding such circumstances and preventing more foreclosed properties from flooding the market, as well as avoiding further disruptions to the economy by simply not addressing the issue.
As for the potential risks of transferring or expanding risks, Chen Songxing believed that it is a structural issue. The substantial reliance on debt in the past led to asset price inflation, and the current situation is effectively a return to square one, where ordinary people’s assets will undergo significant reductions, posing a major problem.
Wang Guochen’s perspective on the Beijing government’s current strategy of “delaying change” is that, given the poor economic environment in China, asking people to repay debts proves challenging. Therefore, banks are prolonging the process by counting these properties as assets, as forcibly reclaiming them could turn them into non-performing assets. Such assets would be difficult to manage, leading to liabilities, and as a result, to portray an improved financial report, they opt for the “cooling-off” method.
According to a report from “Ke,” the Chinese property market is still in a downturn, coupled with economic pressure. The heavily leveraged homebuyers from the previous years will face significant repayment pressure, increasing the risk of loan defaults, indicating a continued rise in the supply of foreclosed residential properties in China.
In response to various financial data, Chen Songxing emphasized that the current issue revolves around a crisis of social confidence, and the Chinese authorities need to swiftly restore public trust. For instance, issuing large-scale bonds to transfer funds to local governments for the purchase of undeveloped land and unsold inventories is one potential solution to create rental housing or affordable housing projects. By providing cheaper rent, a vast number of homes can be absorbed, gradually rebuilding public confidence.
In a report by Xinhua, on May 17, Vice Premier of the State Council He Lifeng urged local governments to buy undeveloped land and unsold inventory from developers.
The Bloomberg report on August 2 highlighted that the Chinese government rejected a proposal by the International Monetary Fund (IMF) to use central government funds to complete unfinished housing projects, citing it as a critical issue hindering China’s economic recovery, with the real estate crisis being a major factor dragging down the economy.
When responding to this, Wang Guochen expressed his belief that the probability of Beijing pushing for a large-scale market rescue is low. They are simply delaying the process until the end, as evident with Evergrande facing a debt crisis, which did not create a crisis of confidence. Even if Evergrande, Country Garden, and Vanke face collapse simultaneously, the mainland China would not experience a significant reaction. They are simply buying time and waiting for an opportune moment to let these negative factors fade.
“The signal of property prices bottoming out has not yet appeared in China,” Huang Shicong observed, indicating that the Chinese government is simply reluctant to address the issue, opting to buy time. He assessed that the real estate consolidation process is likely to take a considerable amount of time.
Huang also mentioned that the Chinese government is waiting and observing the outcome of the U.S. presidential election. Suppose Trump is re-elected and enforces the 60% tariffs he mentioned. In that case, it would significantly impact the Chinese economy, and the Chinese government may evaluate relevant strategies at that time.
However, Huang also acknowledged that after the U.S. presidential election variable is resolved, China may introduce new stimulating measures. Yet, regardless of such measures, as long as the fundamental principles do not change, such as China’s persistent confrontations with the U.S., China will remain isolated from the global economy. In such circumstances, even with additional stimulus measures, they would be fundamentally ineffective.