ANALYSIS-State firms in China buy foreclosed properties to slow downturn

Chinese state-owned companies are buying foreclosed property projects, in a sign that long-promised government efforts ​to reduce massive oversupply in the crisis-hit housing sector are finally getting traction, albeit at a slow ‌pace.

Analysts ​say the involvement of state firms may cushion the pace of further home price falls and ease the drag that the property slump has had on China's economic growth since 2021. But they say it could also prolong the process of the housing market finding a bottom as distressed assets change hands at a deep discounts instead of being fully written off.

"You're simply putting your finger in a hole in the dam," said Sam Radwan, ‌chief executive of Enhance International, a Chicago-based real estate consulting firm with Greater China operations. China's ministry of housing and urban-rural development, the State-owned Assets Supervision and Administration Commission and the State Council Information Office, which answers media queries on behalf of the cabinet, did not respond to requests for comment.

SOME STATE FIRMS BUY AT HEFTY DISCOUNTS A review of announcements on Alibaba's auction platform shows a small portion of the foreclosed property tenders over the past year have been won by state-owned firms across China. Where revealed, the prices were 19%-43% below the estimated value of the projects, some of which were still under construction.

Reuters could not determine the total ‌number and the value of state firm purchases, but analysts believe it is small for now and only represents the start of a protracted effort to reduce a housing inventory estimated at roughly 3,000 square kilometres, or almost twice the size of Greater London. Transactions include a 139.30 million ‌yuan ($20 million) purchase in September of 37 apartments on the tropical southern island of Hainan by Huzhou Chanfeng Enterprise Management Partnership, a firm established in the same month and administered by an eastern Chinese city. Their estimated market value was 248.7 million yuan, according to the tender document.

Also in Hainan, Wuzhishan City Housing Security Service Center, a local government agency, bought six apartments in November for 1.18 million yuan, about 20% below the estimated value stated in the documents. In the southern city of Guangzhou, the housing services firm Guangzhou Nansha City Operations bought 62 units in December for a combined price of over 52 million yuan, with each unit selling at about two-thirds the price of previous secondary market transactions.

Other state firms which won foreclosed property tenders include Ma'anshan ⁠Jinyuan Urban Operations ​Management, Dali Prefecture Sports and Tourism Development, Fuzhou Gulou District Jianxin Investment and Huangshan Tourism ⁠Development. The Wuzhishan agency told Reuters it intended to convert the units into affordable housing for young people and new residents coming into the city. The other local government departments overseeing these purchases did not respond to comment requests.

Of the state firms, Reuters could only find contact details for those based in Huangshan and Guangzhou, which did not immediately respond. "My sense is that ⁠this is more than isolated cases, but still city- and project-specific rather than a broad nationwide pattern," said Zichun Huang, a Capital Economics analyst.

Tender bids from state firms are consistent with a 2024 government policy encouraging them to buy properties and turn them into affordable housing, which due to financial risks had been met with reluctance and didn't ​immediately take off. As foreclosed properties sell below market prices, rental yields automatically rise as well, changing the calculus for some state firms. The involvement of firms from the tourism sector also suggests some of the projects might switch their target from residents to travellers, analysts ⁠said.

"Because of the discounts, SOEs can make the math work," said John Lam, head of Asia property research at UBS. Lam describes the policy as shifting assets from the balance sheets of households or developers, who face some of the highest financing costs in the economy, to the state sector, which has cheap access to liquidity.

CHINA'S PROPERTY CRISIS COULD BE 'GENERATIONAL' State-firm purchases can partly compensate for ⁠weak ​private demand and ease supply pressure on prices.

But in many of these tenders they are the sole bidder - which shows no one else sees value in the properties, even at a discount, and suggests the process of writing down these assets could be lengthy, analysts said. Other statistics of the foreclosed market also raise some red flags. Only 169,000 properties of the 719,000 on auction were sold in 2025, about 4% fewer than in 2024, at a flat average discount price of 26%, according to the China Index Academy, one of the country's largest property research firms.

Such figures are a clear indication ⁠of an oversupply so severe that the real estate crisis could last for "decades, if not more, and it could even be generational," said Enhance's Radwan. The drip-feed of support measures by the Chinese government draws comparisons with the managed property sector decline in Japan in the 1990s.

Tokyo opted for a soft ⁠landing of the sector, through bank purchases of land and loan refinancing rather than ⁠writing off bad debts. It took nearly two decades for prices to bottom. By contrast, crises in the United States or the euro zone in the late 2000s were more abrupt, but also only lasted about five years. The U.S. spent an initial 5% of gross domestic product to absorb bad debts from financial institutions through its Toxic Asset Relief Program. Spain created a bad bank.

In China, bankrupt real estate developers haven't liquidated. Their debts, including ‌for unfinished projects, still sit on the books of ‌banks and other institutions as assets rather than liabilities. "The more you delay the pain, the more you will prolong your economic slowdown," Radwan said. ($1 = 6.9401 Chinese ​yuan renminbi)

(Additional reporting by Xiuyuan Ning in Beijing; Editing by Kim Coghill)