"House rescue" service amid real estate crisis in China

(Dan Tri) - An underground industry is thriving from the wave of bankruptcies, while billion-dollar funds are massively withdrawing capital. These two extremes expose the increasingly deep cracks in the Chinese real estate market.

Amid China’s four-year property slump, a strange story is making the rounds on social media. As millions of homeowners face the prospect of “negative equity” (the value of their home is less than the amount they owe to the bank) and the risk of losing their property, a surprising solution has emerged: even if the bank seizes your home, you can still legally keep it.

Curiosity prompted a reporter from Lianhe Zaobao to investigate. Just a few days after leaving a comment under a post, he received more than a dozen messages from "experts", all of whom were determined to help "save the house".

This is a window into a shadow industry, a unique service born out of market desperation.

As China's real estate market freezes, a shadowy home-rescue business is raking in the cash thanks to "negative equity" homeowners trying to keep their properties by buying back their own bad debts (Photo: Reuters).

Unique home rescue tricks

“Not only will you lose your home, but you will also be set back by a decade compared to others. Buying a new home will be very difficult,” a female expert warned over the phone, after spending half an hour analyzing the dire consequences of not paying off her debt.

After making her clients panic, she started to use her first trick: restructuring the loan to reduce the monthly payment, helping the homeowner to temporarily survive the difficult period. “If you just hold on for a few more years, the house prices will definitely increase again,” she said confidently.

But the real secret is revealed when the customer hesitates. The process is much more complex and daring.

That is active bankruptcy. At that time, the homeowner will stop paying installments, let the bank seize and put the property up for judicial auction.

That's where the "relative" comes in. A trusted relative or friend, with the help of a "house rescue company," will bid and buy the house back, often for half the market price. On paper, the ownership has changed, but in reality, the old owner still has full rights to use it.

It is also a buyback of one’s own debt. Because the auction price is low, the bank debt is not yet paid off. The bank will continue to pursue the remaining amount. However, if the homeowner has no other assets to seize, the bank will “cease enforcement” and sell the bad debt to an asset management company (AMC) at a deep discount, often only 30% of the original value. At this point, through an intermediary company, the defaulter can buy back his own debt at a cheap price.

The result is a perfectly closed vicious cycle. The homeowner not only keeps the roof over his head, but also clears most of his debt. Of course, this “miracle” doesn’t come free.

"House rescue" service - raking in money from the pain of bankruptcy

The rise of “home rescue companies” is a clear demonstration of the law of supply and demand, even in the most dire of circumstances. When millions of people face the same problem, a new service industry is born to solve it.

Their business model is based on exploiting legal loopholes and lack of information from customers. The service fees are not cheap, ranging from 5% of the initial loan value, or from 8% to 20% of the remaining loan balance. With mortgages in the millions of yuan, this is a huge number.

"We don't take your money. We only take the capital you have to pay to the bank," a female expert explained. This argument, though somewhat fallacious, hits the psychology of those in dire straits: it's better to pay a large fee to keep the property and reduce debt than to lose everything.

The market is growing rapidly. On the RedNote platform, the topic of "mortgage default" has attracted nearly 60 million views. Companies boast that they have experience handling bad debts for all types of assets, from apartments and offices to hotels and factories, and are now operating nationwide.

Statistics also confirm this to some extent. Guoxinda data shows that in 2024 alone, 658,000 properties were put up for judicial auction, up 51.69% from the previous year. Other research institutes put the figure even higher, up to 1.6 million units.

But analysts warn that home rescue services are only a temporary painkiller, not a cure for the underlying problem. Homeowners who engage in this process are putting themselves on a legal tangle, risking complex litigation and a more serious credit crunch in the future.

On a macro level, the "cooked up" and transferred bad debts like this is like planting another time bomb in China's already fragile financial system.

International investors are again rushing to sell off assets worth $140 billion at record losses. Pictured are two nearly empty residential plots in a project in Qidong City, China, controlled by Oktree Capital Management (Photo: Bloomberg).

The brutal exodus: $140 billion in commercial real estate "evaporated"

In stark contrast to the efforts to hold on to people’s wealth, international investors are on a massive and brutal run. The nearly $140 billion they have bet on Chinese office buildings, shopping malls, and warehouses over the past 15 years is now a huge burden.

Famous names on the global financial map such as BlackRock, Carlyle Group, HSBC and Standard Chartered are all looking for ways to withdraw, including having to sell assets at heavy losses.

Distressed sales in China are expected to total $16 billion between 2023 and 2024, an all-time high of 22% of transactions last year, according to Bloomberg Intelligence. Bankers and investors estimate that the capital value of Grade A office buildings in Beijing and Shanghai has evaporated by at least 40% from their 2019 peak.

The classic "runaway" deals have become a story that is passed around in the financial world.

BlackRock's "wipeout": At the end of 2024, after failing to sell two office buildings at the Waterfront Place complex (Shanghai), BlackRock's fund decided to abandon the assets, leaving Standard Chartered Bank to handle the 780 million yuan loan. This move completely evaporated their 420 million yuan equity investment.

Carlyle's 50% loss: Also in Shanghai, Carlyle Group's fund sold The Crest building for 826 million yuan, just 57% of what it paid for it nearly a decade ago, even less than the 1 billion yuan mortgage.

Oaktree's "Venice of the East": Even the vulture fund that hunts for distressed assets like Oaktree Capital has struggled with the Evergrande Venice resort project it seized from Evergrande. Home prices there have fallen by more than half from their peak.

Even the logistics sector, once seen as a bright spot thanks to the e-commerce boom, is not immune to oversupply. Blackstone, one of the biggest players, is said to have had to accept an average rent cut of 25% to retain customers.

The solution cannot be just "saving the house" or "selling off"

The picture is even bleaker when looking at the macro data. The latest report from China’s National Bureau of Statistics (NBS) released on October 20 showed that new home prices fell 0.4% in September from the previous month – the fastest monthly decline in 11 months.

The slowdown is widespread, from first-tier cities like Beijing and Shenzhen to lower-tier cities. Goldman Sachs said smaller cities are facing mounting difficulties due to “weak growth fundamentals and severe oversupply.”

For commercial real estate, the situation is even worse. The vacancy rate for offices across China in 2024 reached nearly 25%, the highest on record. Building owners have been caught in a fierce “discounting war,” causing average rents to fall 6.9%, the sharpest annual decline on record. CBRE predicts that the Shanghai market will not be able to absorb all the new supply before 2028.

Warnings of a "lost decade" for China's commercial real estate are more evident than ever (Photo: Getty).

The stories of domestic people trying to keep their homes and international financial institutions selling off assets in China, although opposite, are both symptoms of the same disease: a collapse of confidence and a severe imbalance in supply and demand.

No matter how clever and unique the “house rescue” scheme is, it is only a temporary solution, a way to cover up the festering wound instead of healing it. It does not solve the root problem: house prices have fallen too far and people’s incomes are no longer secure.

Meanwhile, the exodus of foreign investors is a clear vote of no confidence in the market's recovery prospects. They no longer believe in the growth story of Chinese real estate.

“By 2030, the nominal value of buildings could be lower than in 2020,” warned Nicholas Wilson of Oxford Economics, adding that the prospect of a “lost decade” for China’s commercial real estate is becoming a reality.

Clearly, the solution to this crisis cannot lie in financial gimmicks or panic selling. It requires a more comprehensive solution, rooted in economic recovery, job stability and, most importantly, rebuilding confidence among both citizens and investors.

Source: https://dantri.com.vn/kinh-doanh/dich-vu-cuu-nha-giua-bao-khung-hoang-bat-dong-san-o-trung-quoc-20251027155527714.htm