Mainland China’s falling property prices and a weak economy could lead to rising loan defaults, adding to a surfeit of foreclosed homes and further extending the years-long slump, according to an analysis by UBS, reports the South China Morning Post. The number of apartments seized by banks from small businesses could reach more than 2.4 million by 2027, said John Lam, head of China property research at the Swiss bank.
Most small businesses on the mainland pledge property as collateral for loans. The sale of these foreclosed properties could impact around a quarter of China’s new home sales annually and further drive down the prices of second-hand homes, Lam said.
China ramped up issuing business operating loans since the Covid-19 pandemic to support small and individually owned businesses. At the end of September, outstanding loans stood at RMB 36.1 trillion ($5.1 trillion), roughly triple the pre-pandemic level, according to Lam.