Amidst the collapse of the real estate market in mainland China, the number of foreclosed properties continues to rise. However, nowadays even foreclosed properties are having difficulty finding buyers. Behind these foreclosed properties are numerous homeowners facing the dilemma of supply cut-offs, including young people, construction workers, and families facing financial difficulties due to loan guarantees. Some lawyers involved in handling foreclosed properties have revealed more details.
According to a report by Daily People’s Society on July 29th, foreclosed properties are also facing difficulty finding buyers. Over the past two years, Lawyer Xu Hanlin from Sichuan Mingju Law Firm’s Criminal Defense Center witnessed the transition of the foreclosed property market from hot to cold, with the supply-demand relationship reversing overnight.
Xu Hanlin disclosed that she specializes in economic criminal law and has previously served as a judge’s assistant, rotating through courts and handling numerous cases related to foreclosed properties. In 2021, she even purchased a foreclosed property herself. Throughout her years in this field, she has observed the transformation of the foreclosed property market from prosperity to the burst of the housing bubble.
Initially, her involvement with foreclosed properties was related to criminal cases in the economic field, such as official misconduct and economic crimes, which often involved the disposal of substantial assets, including many properties subject to enforcement. However, more recently, the majority of foreclosed property owners belong to ordinary individuals whose economic conditions have deteriorated. Unable to repay mortgages or lacking other assets to settle debts, their properties are now facing foreclosure.
During her time rotating through the courts, she encountered various cases seeking advice on foreclosed properties. For example, there was a family of six, where the husband was an accountant and the wife was a clerk. Unfortunately, the wife lost her job, and their property was on the verge of foreclosure. Additionally, they had provided guarantees to relatives, resulting in their property being re-mortgaged; the relatives’ business failed, leaving them with debts exceeding one million RMB, secured with the family’s property. Consequently, they owed money to two banks and had no choice but to auction their house to repay their debts.
Xu Hanlin noted that the number of foreclosed properties is increasing. According to data on foreclosed properties in various cities nationwide from January to May this year, Chengdu had 9580 foreclosed properties listed, ranking second in the country. In Chengdu, the average discount rate for foreclosed properties this year is 73.45%, with a transaction rate of only 26.32%, and a non-sales rate reaching 73.68%. This signifies the highly subdued market condition for foreclosed properties.
As the quantity of foreclosed properties surged, the demand for lawyers also increased, leading to changes in how cases are handled. Xu Hanlin mentioned, “In the past, when banks were more rigid, our law firm’s specialized team would process thousands of complaints against homeowners each month. Nowadays, as banks seek to recover cash quickly, they are willing to negotiate and mediate with homeowners in a more gentle manner, hoping to avoid supply cut-offs. Simply put, if clients demonstrate a genuine willingness and capacity to repay, banks have policies to reduce interest.”
She witnessed many individuals who had given up hope and decided to default on their loans. In times of high property prices, there was a mentality to hold onto assets that were perceived as valuable. However, with the current downturn in the real estate market, some have adopted a more indifferent attitude, feeling hopeless as they cannot repay their debts; even when their properties are foreclosed, it is still insufficient to cover their bank loans.
Xu Hanlin stated that the wave of supply cut-offs likely began after the pandemic. If we categorize those facing foreclosure, most of them are individuals who have either failed in business ventures or lost their jobs. Some have become entangled in the financial woes of others after providing guarantees, while others have indulged in highly leveraged property speculation, resulting in financial instability and the burden of repaying loans.
She mentioned that perhaps Chengdu is a microcosm of other cities in the country. The salary levels in Chengdu are not high, the local job market is not flourishing, and with declining income and increased unemployment, people’s lives have suddenly become challenging.
Furthermore, Xu Hanlin highlighted cases of individuals working in the internet industry, chip industry, or education sectors who once enjoyed higher salaries and purchased quality properties, only to face sudden unemployment. Struggling to find appropriate employment and burdened with heavy mortgages, they find it challenging to make ends meet. Without other savings to fall back on, once the repayment stalls beyond the deadline, banks initiate foreclosure proceedings.
She shared the story of a friend in his twenties who was a recent graduate working at a prestigious internet company with an annual salary of more than 300,000 RMB. He had acquired a 130-square-meter second-hand property in a prime location in southern Chengdu for approximately 3 million RMB, leveraging heavily during the purchase with low initial payments resulting in monthly installments exceeding 15,000 RMB. Confident in his prospects, he suddenly lost his job due to company restructuring, making it impossible to repay his housing loan.
Feeling anxious, he almost considered giving up his property. With such outstanding debts, his options were limited to borrowing from friends and family or continuing to borrow from banks. Eventually, prioritizing his reputation and believing in the potential value appreciation of the property, he opted to refinance through another bank to repay the loan, sustaining his financial situation for a while. After a few months, he managed to secure a new job.
Xu Hanlin observed that in some cases, even when the property is foreclosed, it is still insufficient to cover the bank’s loan amount. The valuation of a foreclosed property is discounted by approximately 20% in the first auction, reduced to 40% in the subsequent auction. If both auctions fail, the property is sold at a discount of 50%. How many individuals can bear such substantial discounts?
Previously, every household considered buying property, believing it was a secure investment promising profits. Now, this belief has shattered.
The overall real estate market in China is collapsing, eroding the savings of numerous individuals.
She recounted the story of a relative who was a construction worker and ended up impoverished due to a tumor diagnosis that cost him millions in medical bills. Unluckily, the property developer owed him millions for construction work, but with the developer also facing financial difficulties, they gave him ten dilapidated step-up houses in the remote suburbs of Xingyi City, Guizhou Province.
These properties are essentially worthless cement structures, incomplete and impossible to transfer ownership, making them unsellable even at a foreclosure auction. A 100-square-meter property with a market value of around 600,000 RMB was foreclosed at over 400,000 RMB, and even after multiple auctions, they remain unsold due to title issues and lack of demand, regardless of the reduced prices.
In such dire straits, while working on construction projects and already owing operating loans to banks, this relative found himself unable to repay his debts. Consequently, his only residence is now scheduled for auction.