Bold reality check: UBS warns China’s property crisis could unleash millions more foreclosures and drag the economy deeper.
UBS argues that falling mainland property prices and a weakened economy are setting the stage for an uptick in loan defaults, which would flood banks with foreclosed homes and prolong the long-running housing slump. John Lam, UBS’s head of China property research, estimated on Tuesday that the number of apartments banks repossess from small businesses could exceed 2.4 million by 2027. In China, a large share of small firms use their real estate as collateral for loans, so a steep rise in defaults would translate into a sizable stock of foreclosed properties.
Lam noted that the sale of these foreclosed assets could affect roughly a quarter of China’s annual new home sales, potentially depressing prices for existing homes as well. He described this dynamic as a major risk worth watching closely.
To support small and individually owned enterprises, China expanded its issuance of business operating loans during the Covid-19 era. By the end of September, outstanding loans reached 36.1 trillion yuan (about US$5.1 trillion), roughly three times higher than the pre-pandemic level, Lam said.
The property market’s decline has been severe: prices have fallen about 35% from their peak, eroding collateral values and intensifying negative equity pressure for homeowners.
Lam warned that homeowners facing negative equity may end up covering the shortfall out of pocket. In such cases, they could be compelled to sell their properties themselves to avoid owing more, or may be forced to do so due to financial distress.
This scenario underscores a delicate balance for banks, policymakers, and developers as they navigate a still-fragile housing market that continues to hinge on consumer confidence and broader economic momentum.
