Inside China’s housing crisis: The shadow industry ‘saving’ homes from default
The true remedy lies in reviving the economy, restoring jobs, and achieving stability in the real estate market
[SHANGHAI] Property prices in China have been falling for four years, and an increasing number of homes are now valued below the remaining loan amounts.
Simply put, if a property was initially purchased for two million yuan (US$364,816), with a loan of 1.5 million yuan, after several years of repayments, the remaining mortgage would be 1.2 million yuan – but the property is now only worth one million yuan.
Faced with this awkward situation of “negative equity”, many homeowners who bought at high prices are considering abandoning their properties and halting repayments.
Amidst widespread lamentations about “mortgage defaults” on social media, one post offered a purported solution: even after collection proceedings and judicial auction, a property could allegedly be legally retained for up to five years.
Is such a good deal possible? I left a comment on “how to hold on to a property”. To my surprise, over the next few days, more than 10 “experts” sent me private messages, all claiming that they could help to retain properties. After sifting through them, I arranged to speak with one who claimed to be a “top expert”.
Expert advice?
In the first 30 minutes of our call, the expert stressed the importance of holding on to the property, warning that if I stopped making payments, I would lose not only the down payment and all previous instalments, but also the money spent on renovations.
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Worse still, if the auctioned property failed to cover the remaining mortgage, I would be required to keep repaying the balance. “You wouldn’t just lose the house,” the expert warned, “you’d be set back more than a decade – buying another home would become a distant dream.”
After we agreed on the dangers of defaulting, she introduced the first trick to save the house – toughing it out. She explained that if I engage her help in debt restructuring, my monthly payments could be significantly reduced, allowing me to weather this real estate slump until the government’s “housing market stabilisation” policies took effect. Having said that, she deftly calmed me down by proclaiming that “if you tough it out these few years, you will definitely see property prices rise again.”
Sensing that I was unmoved, there was a moment of silence before she changed her approach: Do you have any relatives or friends not on the same household registration that you can trust? After I confirmed I did, she finally started to reveal the heart of how it all worked.
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The first step, the expert explained, was to let the property enter the judicial auction process after default. A trusted relative – with help from the “house-saving” company (保房公司, baofang gongsi) – would then bid for the home at roughly half its market price. On paper, ownership would change hands, but in practice, I would still control the property, now at half the cost.
Because the auction price would not fully cover the outstanding loan, I would still owe the remaining balance. How would that be handled?
The expert answered calmly: if the bank could not find any assets to seize after reviewing my accounts and property records, it would eventually “terminate enforcement”, effectively closing the case. The bad debt would then be sold to an asset management company – typically at about 30 per cent of its face value. Through the “house-saving” company, I could then “buy back” the debt at a discount, indirectly reclaiming my own loan.
At that moment, it clicked. “Retaining” the property meant having someone buy it at auction, then repurchasing the debt at a steep discount – an asset shuffle disguised as loss mitigation. For a remaining mortgage of 1.2 million yuan, I might end up paying only around 710,000 yuan to keep the home, saving nearly half a million.
In short: default does not have to mean defeat. Once the bank gives up enforcement and offloads the bad loan, you can – through a middleman – buy back your own debt at a bargain and keep the keys.
The business of retaining property
Of course, such a manoeuvre does not come cheap. The expert explained that “house-saving” firms typically charge a fee of around 5 per cent of the original loan amount – or between 8 and 20 per cent of the outstanding balance.
For mortgages that often amount to millions, even the lowest 5 per cent would be a significant sum. However, the expert had her sales pitch ready: “We are not actually earning your money; we’re taking a part from what you originally would pay to the bank, forming a perfect closed loop. That’s the value of our service.”
She pitched the company as a seasoned player in non-performing asset management, boasting experience with apartments, office buildings, shops, hotels, and factories. With the rise in defaulted properties this year, they created a specialised department for house-saving, and now their business spans nationwide.
On the social media platform RedNote, the topic “mortgage default” has drawn nearly 60 million views, while posts about “house-saving after default” have surpassed 18 million. There’s no official tally of how many homes have defaulted, but auction listings and rising personal loan delinquency rates across banks offer a glimpse of the scale.
Data from Guoxinda showed that in 2024, there were 658,000 judicial auction properties listed in China last year, a 51.69 per cent increase from the previous year; according to the real estate research institution China Index Academy, the figure was 768,000; Hanhai Research Institute indicated over 1.6 million listings last year.
Deeper implications
On the surface, the ubiquitous “property retention” business offers defaulters a shortcut to reduce debt and keep their homes. However, faced with mixed information, high service fees and unclear regulatory grey areas, homeowners who thought spending money could solve their urgent problems might instead become entangled in complex legal disputes, potentially falling into deeper credit crises.
At the same time, the accumulation and transfer of non-performing assets might disrupt the social credit ecosystem in the short term. In the long run, it also places a time bomb in banks and the financial system, increasing financial market instability.
Ultimately, “house retention” schemes are just a symptom of deeper troubles in China’s property sector. They may appear to ease the pain of default, but in reality, they only paper over the structural cracks in the housing market through complex manoeuvres. The true remedy lies not in saving houses, but in reviving the economy, restoring jobs, and achieving genuine stability in the real estate market.
This article, translated by James Loo, was first published on ThinkChina, an English-language digital magazine under Lianhe Zaobao.
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