China is demonstrating an upward trend in its distressed property sales with listings swelling to a record high of $190 billion, according to Bloomberg, citing data from realtor Seatune.
The Chinese auction sites are enjoying the surge and global funds like Oaktree Capital Group LLC and Bain Capital LP riding on the trend.
The most important factor driving the trend is the increasing buying power of private individuals competing against big companies to take advantage of bargain deals.
Alibaba Group Holdings Ltd.'s Taobao auction site experienced the largest increase, up at 88 percent in October compared to 2017, Bloomberg reported. Behind the company's strategy is a close affiliation with courts and asset managers.
Taobao was started nearly six years ago and managed to close distressed property auctions amounting to nearly 500 billion yuan in 2017, according to James Feng, the chairman of Poseidon Capital Group, a Chinese fund that buys distressed properties. The amount accounted to more than 50 percent of all online distressed property auctions closed in China.
People are keen to acquire distressed properties due to their bargain prices. These properties were comprised of homes or business warehouses that previous owners could no longer be maintained. Distressed properties may also be comprised of houses and buildings that underwent bank foreclosure.
Typically, owners of such properties, rather than leaving them unprofitable and sitting idly, would choose monetization even for the lowest price they could ask. Usually, they only asked about two-thirds of its original market value, Bloomberg noted.
For instance, a two-bedroom apartment located in Shanghai which normally valued at about 10 million yuan could be sold through online auction sites 44 percent lower than its average market value. Such is the case with one property sold through Taobao in September.
Also in Taobao, 60 million yuan apartment in Hangzhou was sold for 40 percent less than its typical price of 60 million yuan. The unit has marble floors, high staircases, and chandeliers, according to Bloomberg.
Apart from the online sales of distressed properties, the Chinese real estate market is generally on an upward trend. Another segment with strong performance is the rental housing market in China. A research released on Dec. 11 projected that about 750,000 new rental apartments will be available in Beijing, Shanghai, Guangzhou, Shenzhen, , and Chengdu by 2022. At present, the total rental apartments in the six cities were only at 135,000, the study from JLL stated. JLL is a global real estate consultancy firm that focuses on trends in single-ownership and leasing businesses of more than six months.
