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China's rural banks are facing mounting stress as they struggle to sell a growing stock of foreclosed properties, even after offering discounts of 20-30% below prevailing market prices. According to a Reuters review of listings on JD.com's asset auction platform, banks in several less-developed provinces saw a sharp rise in seized residential and commercial assets during 2025, reflecting deepening strains from the prolonged property downturn. Judicial auction failures in earlier years have left lenders holding illiquid assets, while falling home prices have eroded collateral values. Analysts warn that the problem is likely to intensify as small business loans issued during the COVID period mature and refinancing remains difficult. UBS estimates foreclosed properties could rise sharply by 2027, raising concerns over capital adequacy, asset quality and the sustainability of distressed asset disposal across China's banking system.
Chinese rural banks are increasingly struggling to sell properties seized through loan defaults, even as they offer steep discounts, underscoring the depth of the country's prolonged property downturn and its spillover effects on the financial sector. Advertisement
A review of listings on JD.com's Asset Trading Platform, one of China's largest online auction portals, showed a sharp increase in bank-initiated property sales across less-developed regions during the past year. Most of the listings were placed by local rural banks, with properties typically priced 20%-30% below prevailing market levels, according to bankers, analysts and real estate agents.
The rush to offload seized assets follows a sharp downward revaluation of property prices across China. Homes, long considered reliable collateral for bank lending, have lost significant value amid falling sales and weak demand, leaving smaller lenders exposed as bad loans rise.
Market participants indicated that banks now hold a substantial volume of foreclosed homes, making it difficult to clear inventory even at discounted prices. In one instance cited by local agents, a 160 sq metre apartment in Dalian, listed by a regional branch of Bank of Jilin at CNY 1.35 million well below its estimated market value of CNY 2 million failed to attract buyers even after multiple auction attempts late last year.
China's property slowdown, which began in 2021, has become the longest and deepest on record. Official data show that average home prices in 2025 fell back to levels last seen in 2018, while new home sales by floor area dropped to volumes last recorded in 2009. Moody's Analytics has projected that weak sales and falling prices are likely to persist this year.
The stress has intensified following a wave of developer defaults and high-profile collapses, including Evergrande, which have rippled through the broader economy. As judicial auctions of seized properties during 2022-2023 failed to clear inventory, banks have been left holding assets they are now attempting to sell directly.
Listings data highlight the scale of the problem. Banks in Gansu province offered more than 4,200 properties last year, nearly double the previous year's total. Similar increases were recorded in Sichuan, Jilin and Shanxi, spanning both residential and commercial assets.
Nationwide, banks are estimated to have listed around 1.35 million properties acquired through defaults since mid-2024, according to a UBS report. The investment bank has warned that the number of foreclosed properties could rise to 2.43 million units by 2027, driven by deteriorating loan quality and weak refinancing conditions.
Additional pressure is emerging from small business loans issued during the pandemic, many of which are now maturing. With economic recovery uneven, a growing number of borrowers are struggling to refinance, prompting lenders to seize pledged collateral.
Analysts cautioned that while the volume of distressed property sales remains small relative to China's total outstanding mortgages and household business loans, a sustained rise could strain bank capital if disposal accelerates. UBS expects residential property prices to decline by around 10% in 2026, followed by a further 5% fall in 2027, citing persistent oversupply across the market.
Source - Reuters
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