CHINESE home buyers are flocking the online market to snag bargain properties amid the rising rate of mortgage defaulters in the world’s largest bad-debt market.
According to Bloomberg, individual buyers and small companies are following after global funds like Oaktree Capital Group and Bain Capital in getting in on the action, thanks to the internet.
Scouring websites like Taobao’s property auction site, the investors look for properties owned by debt-ridden banks, real estate firms and people either looking to offload their loan burden or turning their assets into quick cash.
In September, a two-bedroom apartment in Shanghai going for RNB 10 million (US$1.47 million) sold at a 44 percent discount on the e-commerce site whole another unit with marble floors, sweeping staircases and chandeliers worth RNB60 million (US$ 8.6 million) went for some 40 percent lower than the market prices.
In October, Taobao’s auction site recorded an 88 percent increase in distressed property listings compared to the year earlier after it started working more closely with courts and asset managers.
Date compiled by realtor Seatine showed distressed real estate listings surging to a record 1.3 trillion yuan (US$188 billion) this year.
Getting a bargain is one of the main reasons people buy property online. A two-bedroom apartment in Shanghai worth about 10 million yuan at current prices went for a 44 per cent discount on Taobao in September.
In Hangzhou, a city in eastern Zhejiang province, a 60 million yuan unit with marble floors, sweeping staircases and chandeliers is listed on Taobao for around 40 per cent less than current prices.
James Feng, chairman of Poseidon Capital Group, a Chinese fund that specialises in buying distressed assets said: “With bad loans rising and property prices falling, be assured this trend will continue.”
In China, distressed property – homes that pique interest of individuals and land or warehouses eyed by companies – is typically offered at two-thirds of its market value, according to Bloomberg.
Zhejiang province’s Zheshang Asset Management pointed out that heated bidding could see prices pushed up 90 percent of the opening bid but less than half of the listings are actually sold.
On average, houses in China’s 70 major cities rose 1.4 percent in August from a month earlier and the market for distressed properties are expected to grow
In a report last month, PricewaterhouseCoopers said real estate makes up for the mainland’s US$1.4 trillion non-performing loan market, accounting for up to 80 per cent of debt in portfolios sold.
But while the prices of properties on offer look attractive to buyers, many are caught off guard with the high taxation costs which were not listed on sites like Taobao.
In March, a man in Shenzen discovered he had to fork out an additional RNB2.4 million in value-added taxes for an RNB3.7 million (US$536,000) home he bought online.
To prevent this from happening, PricewaterhouseCoopers’ China advisory business director Yao Kunlun said buyers should conduct due diligence on the property of interest to understand the situation.
“As pressure to resolve non-performing loans rises, more and more real estate collateral will be put up for sale.”