UBS predicts a staggering 2.4 million property foreclosures in China as loan defaults surge, posing a significant threat to the country's real estate market. This prediction comes as a result of the falling property prices and a struggling economy, which are expected to exacerbate the already dire situation of foreclosed homes. John Lam, the head of China property research at UBS, warns that the number of apartments seized by banks from small businesses could reach an alarming 2.4 million by 2027. This is particularly concerning because most small businesses in mainland China use property as collateral for loans. The impact of these foreclosures is twofold: they could affect approximately one-fourth of China's annual new home sales and further depress the prices of second-hand homes. Lam emphasizes that this is a critical risk, stating it's 'a key risk we are concerned about.' The Chinese government's efforts to support small and individually owned businesses during the Covid-19 pandemic have led to a massive increase in business operating loans. As of September, outstanding loans amounted to 36.1 trillion yuan (US$5.1 trillion), which is roughly triple the pre-pandemic level. This surge in loans, combined with the decline in property prices, has created a perfect storm for loan defaults. The concept of 'nail houses' in China adds another layer of complexity to this issue. These are properties that have become stuck in the system, unable to be sold or redeveloped due to various legal and financial constraints. While some see them as a hindrance to urban development, others argue that they are victims of the broader economic downturn. The future of China's real estate market hangs in the balance, with the potential for widespread foreclosures and a prolonged slump in property values.
