Chinese rural banks fail to sell discounted foreclosed homes, worsening the property crisis and raising financial stability risks.

Chinese rural banks are struggling to attract buyers for hundreds of foreclosed properties, even after offering steep discounts. The sluggish response highlights the worsening real estate crisis and rising risks for China’s financial sector and wider economy.

Sharp Declines Hit Rural Property Markets

A Reuters review of bank listings on JD.com’s Asset Trading Platform revealed that many underdeveloped regions, where home prices have fallen sharply, saw a surge in bank-initiated property auctions in 2025. Most listings came from local rural banks, offering discounts of 20% to 30% compared with market prices, according to analysts and real estate agents.

The rush to offload foreclosed homes shows how smaller lenders, already struggling with mounting bad loans and weak capital buffers, are cutting losses rapidly. “The prices are shockingly low,” said Li Youcai, a property agent in Dalian, Liaoning province. “Banks currently have a very large supply of foreclosed properties.”

One 160-square-metre apartment auctioned by the Bank of Jilin’s Dalian branch for 1.35 million yuan ($191,729) failed to sell even in a second round, despite being priced well below its 2 million yuan market value, Li added. The Bank of Jilin and the National Financial Regulatory Administration did not respond to requests for comment.

A Prolonged Property Slump

China’s property downturn, which began in 2021, remains the longest and deepest in the nation’s history. It has weighed heavily on the $19 trillion economy, with little sign of recovery. Average home prices in 2025 dropped to 2018 levels, while new home sales by floor space fell nearly 50% from their peak, returning to figures last seen in 2009.

Major developers such as Evergrande have collapsed, while dozens more have defaulted on their debts. As the crisis spread, rural banks dramatically increased the number of foreclosed properties listed for sale. In Gansu province, for example, banks offered 4,292 properties in 2025, up from 2,398 in 2024 and just 478 in 2023. Similar increases occurred in Sichuan, Jilin and Shanxi provinces, according to data from JD.com.

Nationwide, banks have put up an estimated 1.35 million properties since mid-2024, UBS reported in November. Many of these properties were previously tied up in lengthy judicial auctions that left banks holding unsold assets for years. “Unless prices are very attractive or locations are good, it’s almost impossible for banks to find buyers,” said Andy Lee, CEO of Centaline China.

Mounting Risks from Distressed Assets

Banks now face a new wave of distressed loans as small business debt issued during the COVID period matures. With limited refinancing options, many borrowers are defaulting, forcing banks to seize more collateral. “The long-awaited property support policies have not materialised,” said Xiaoxi Zhang of Gavekal Dragonomics. “Banks holding foreclosed properties won’t see prices recover, so it’s better to sell early and limit losses.”

UBS estimates that the number of foreclosed properties will climb from 640,000 units in 2025 to 2.43 million by 2027. However, analysts warn that widespread price cuts of 20% to 30% could undermine market stability and prompt government intervention.

John Lam of UBS expects prices to continue falling, by around 10% in 2026 and 5% in 2027, citing oversupply across the sector. Zhang added that China is now entering its largest-ever cycle of non-performing asset disposals, testing how much financial strain banks can bear.