New Delhi, Jan 23 (IANS) China’s rural banks are stuck with hundreds of foreclosed homes that couldn't get auctioned even at steep discounts, signalling deep stress in the property sector and financial system, a report has said.
The report in Modern Diplomacy said that the stress in the property sector spilled into local bank balance sheets and could widen into a major non‑performing‑asset disposal cycle.
It cited UBS estimates, which showed "the volume of foreclosed properties nationwide could rise sharply over the next few years", leading to "the largest non-performing asset disposal cycle in China’s history."
Hundreds of homes seized through loan defaults are being auctioned at 20 per cent to 30 per cent discount to prevailing market prices, yet often fail to attract bidders, with demand weakest in less‑developed regions that have seen the sharpest price declines.
"Listings in provinces such as Gansu, Sichuan, Jilin, and Shanxi have risen sharply year on year, reflecting both rising defaults and banks’ urgency to clean up their balance sheets," it noted.
Meanwhile, listings on platforms such as JD.com showed a sharp rise in properties put up for auction by local rural banks, the report said.
"These sales are concentrated in provinces where housing markets have suffered prolonged declines, including parts of the northeast, northwest, and southwest," the report said.
Rural banks dominated the listings, indicating that they are most exposed to local property markets, and weaker to absorb loan losses compared to larger national lenders.
A once‑stable lending security has transformed into a drag on bank balance sheets, and an oversupply of bank‑owned homes is further depressing prices as buyer sentiment shifts toward caution, it added, citing real estate agents.
Average home prices dipped to levels last seen in 2018, while new home sales volumes have dropped to 2009 levels. "Several major developers have collapsed, and dozens more have defaulted on debt, amplifying stress across the financial system," the report noted.
Judicial delays made banks hold properties for years, followed by failed court-led sales, which compounded the problem. By the time assets reached bank balance sheets, prices had often fallen further, it added.
--IANS
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