the scale of the judicial auction property market is growing rapidly. what are the risks behind “picking up a bargain”?
2024-09-13
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"small foreclosure house bought", "female lawyer bought foreclosure house and fell into trap", "should foreclosure house be bought?" this year, foreclosure houses have become a hot topic on social media, with some people sharing their experience of buying a house, while others accidentally "fall into trap". this field, which was once far away from ordinary home buyers, is gradually coming into the public eye.
a foreclosed house is a house that is auctioned off by the court. when a debtor is unable to perform a loan contract or is unable to repay his debts, the creditor will apply to the court for compulsory execution through judicial procedures, and the house under the name of the debtor will be auctioned off. the proceeds from the auction will be used to repay the debt. the house auctioned in this process is a foreclosed house.
in the past two years, the scale of judicial auction houses has risen sharply, and "out-of-the-box" transaction stories have frequently appeared.
according to a recent research report by cric, the transaction amount of residential foreclosed properties nationwide will reach 150 billion yuan in 2023, a year-on-year increase of 10%. among them, the supply of foreclosed properties in sichuan, guangdong, henan and other provinces ranks at the top.
compared with the national transaction volume of more than 15 trillion yuan for first- and second-hand houses, the overall transaction volume of judicial auction houses is less than 1% of the total transaction volume of first- and second-hand houses in the country, but its listing scale has gradually increased, which has had a certain impact on the overall transaction market.
entering 2024, according to cric's monitoring, as of august 31, the cumulative number of foreclosure homes listed in typical cities reached 280,000, an increase of 12% year-on-year. in august this year alone, the number of newly listed foreclosure homes reached 37,676.
in terms of transaction rate, there were 37,676 judicial auction houses listed in typical cities in august. excluding those that had not yet started or were in progress, the effective auction volume was 9,572 houses, of which 1,835 were sold, with an average transaction rate of 19.2%. the monthly transaction rate hit a new high for the year.
looking at the cities, shanghai had the highest transaction rate of judicial auction houses in august, reaching 50%, that is, half of the valid auction houses were sold. the transaction rates in shenyang, xiamen, chongqing, jinan, nanjing, beijing and other cities also exceeded 30%. among them, chongqing had 1,158 houses for auction in august, with 261 valid houses and a transaction rate of 41%.
in addition to the high transaction rates in some cities, there have been frequent "out-of-the-circle" cases in the judicial auction housing field this year.
for example, a woman in anhui recently listed 87 foreclosed properties in changsha, involving five residential areas. due to the large number of properties, it once became a hot topic. the jd judicial auction platform shows that these properties are currently in the "preview" state and will be officially auctioned at 10 am on september 29.
for example, in july, a 463.91-square-meter villa in oct chunshui'an, nanshan district, shenzhen, was sold for a total price of 232 million yuan, equivalent to a unit price of about 500,000 yuan per square meter, setting a new record for the unit price and total price of shenzhen's foreclosed houses. only two buyers participated in the auction, but it attracted more than 38,000 onlookers.
why are foreclosed properties, which were once a niche market, attracting more and more attention? price is one of the important factors.
according to cric statistics, the average discount rate of foreclosed properties in august was 29%, which means that the starting price was about 30% lower than the market price. in detail, about 16% of foreclosed properties had a discount rate of 40% or more.
from the perspective of transaction, the transaction rate of these properties with a discount of more than 40% reached 33%, and the high cost-effective properties are very attractive. overall, the average discount rate of foreclosed properties sold in august was 36%, which is about 3 percentage points higher than the average for the year.
some netizens shared on social media that they had just bought a foreclosed house. although they had many questions about it at the beginning, they were still impressed by the price of the house. the market price of the same house type in the same community is nearly 4 million yuan, while the starting price of this house was more than 2 million yuan. after learning from various sources, they finally bought it at a price 1 million yuan lower than the market price.
in addition to the low prices that allow homebuyers to "pick up bargains", foreclosed properties have other characteristics. for example, "foreign auction properties" are all existing properties, and the property ownership certificates are generally withheld by the court. after the property is auctioned, the court will directly change the property ownership. in addition, if the selected area has a lot of room for future development, it is not ruled out that there will be room for appreciation in the future.
cric predicts that as the scale of first-hand and second-hand transactions continues to shrink and housing prices adjust, the overall transaction rate of foreclosed properties will continue to be high at around 20%. for the low-priced segment with lower market heat and higher price sensitivity, foreclosed properties will occupy a larger market share.
it is worth noting that although there is room for “bargains” in foreclosed properties, the risk factors behind it cannot be ignored.
china great wall asset management recently stated in an article that there are several major risk factors hidden behind the low prices of foreclosed properties: for example, potential leasing behavior. due to the legal principle of "sale does not break the lease", for existing and ongoing lease contracts, the buyer can only obtain ownership of the house but not the right to reside in it; the evacuation of foreclosed properties is also a difficulty in practice, which consumes additional time and money costs; in addition, even if the property rights of the foreclosed property are transferred, it is still possible to encounter obstruction from individual creditors.
due to the above reasons, although the transaction rate of judicial auction houses in some cities is relatively high, overall, there are still a large number of houses that fail to be sold and are listed again. according to incomplete statistics from cric, among the 280,000 judicial auction houses listed in the first eight months of 2024, about 103,000 houses were auctioned twice or more, accounting for nearly 40%.
judging from the discount rate, there is a big difference between the first auction and the second-time sales. the discount rate of the second-time sales increased to 37%. in order to alleviate debt problems, property holders may have to speed up the disposal and realization of properties. therefore, the discounts on the second-time sales are greater and the sales rate is relatively higher.
wang yuchen, director of beijing jinsu law firm, said that there are problems with foreclosed properties, unclear ownership, multiple seizures, arrears of taxes and fees, poor quality structure, and inability to transfer household registration. a successful bid does not necessarily mean that the property will be acquired. the bidder will need to register the property rights and actually occupy the property to be considered to have fully acquired the property.
"before bidding for a foreclosed property, buyers must fully understand the property and eliminate related risks." wang yuchen said that it is necessary to understand as much relevant information as possible, not limited to property rights, mortgages, seizures, etc.; be sure to visit the property on site, pay attention to issues such as house usage and payment and household registration, and you can also check judicial documents and execution information to verify whether the house is involved in other disputes.
(this article comes from china business network)
