[Speaker 2]: Hello everyone, welcome to the 1015th episode of Tax Research Insights on Friday, February 6, 2026. Let's discuss the topic from January 15th, Maang Shouse. The former head of the National Housing Reform Task Force stated in an interview that although the total number of foreclosed properties in China is currently small, it severely impacts the entire market price system and financial stability, easily triggering panic in the real estate market. Therefore, Maang Shouse suggested China should stop foreclosures. What are your thoughts on Maang Shouse's viewpoint?

[Speaker 3]: First, let's introduce Maang Shouse. He comes from a prominent family, worked in the General Office of the Central Committee in his early thirties, and began serving as the General Manager of the China Real Estate Development Group (CRAG) in 1992. Later, he became Party Secretary of CRAG and the head of the National Housing Reform Task Force, which was an academic position he held after retiring from his main roles.

[Speaker 3]: His most famous statement was in 2023, when the pandemic had just ended. Maang Shouse stated that Chinese residents added 15 trillion yuan in savings in 2022. Household transaction volume decreased by 5 trillion yuan. He argued that if Chinese people were willing to use one third of their savings to buy houses, the Chinese economy could recover smoothly. I won't comment on the correctness of Maang Shouse's statement at the time. But when Maang Shouse made a statement in 2023, Chinese housing prices had not yet formed a comprehensive downward trend, and there was no consensus among ordinary people. The fact that Maang Shouse, who was able to speak out immediately to salvage the real estate market, shows that he does have some insider knowledge of the real situation.

[Speaker 3]: This time, Maang Shouse is speaking out again, saying that foreclosures will impact the real estate market. Whether you support rising prices or falling prices, you should take this seriously. Let me first explain the logic of foreclosures. Simply put, if someone cannot repay their mortgage, uses their house as collateral, but cannot repay the debt, the house can be auctioned through judicial procedures after being seized by the court. Of course, banks cannot arbitrarily auction houses. Their regulations regarding the starting price for the first auction are as follows: the court will engage a third-party appraisal company to provide an estimate based on market prices. According to the Supreme People's Court's regulations, the starting bid for the first auction can be discounted by up to thirty percent. If the first auction fails, the court can further reduce the price and initiate a second auction. The starting bid for the second auction can be about twenty percent lower than the first one, which is equivalent to fifty percent of the appraised value. If the house fails to sell in both auctions, it enters the liquidation phase, where it is sold directly at the starting bid price of the second auction. Generally, there is no negotiation or further bidding involved. Ordinary homeowners might hold onto their properties if they think the price is too low, but banks or other creditors have no need for housing and no emotional attachment to the properties. So, they will almost certainly sell the properties as soon as they acquire them, and they will reduce the price according to regulations.

[Speaker 3]: Foreclosed properties often reflect the true market valuation of the properties under current liquidity conditions. This is the impact that Maang Shouse fears. To understand the extent of the impact, we can look at the 2025 foreclosure data analysis report released by Rulian Asset Platform on January 22nd. First, let's look at the overall data in 2025. Nearly 1.3 million properties will be listed nationwide, an increase of 16.41% compared to 2024. In 2019, this number was less than 500,000. At the same time, the transaction volume of foreclosed properties was only 188,000 units, less than 1% of the total listings. In other words, the current discounts on foreclosed properties have not yet reached true traction levels; most foreclosed properties are not being sold. This is just a general trend. Please read the original report directly.

[Speaker 3]: The continuous increasing supply is not caused by a short-term shock, but rather the result of risks accumulated gradually during the real estate downturn being concentrated in the judicial disposal channel. In the past two years, this indicates that the foreclosure market is still in a stage of accelerated exposure of existing risks and has not yet shown any significant signs of supply contraction. Against the backdrop of a significant expansion in the scale of listings and continuous price concessions, the increase in transactions after some assets enter the tradable stage does not mean a dramatic improvement in demand. With limited demand and ample supply, even if banks are unwilling to lose money, they will inevitably have to offer more discounts.

[Speaker 3]: Please quietly read a section of Maang Shouse's statement for me: When a low-priced foreclosed property appears in a neighborhood, the transaction price quickly becomes the new benchmark for property values in that neighborhood. This means other collateral properties are generally undervalued, which could trigger more loan defaults. Faced with more defaults, a new round of foreclosed properties entering the market will further depress surrounding housing prices, thus forming a vicious cycle of falling prices and more foreclosures.

[Speaker 3]: Simply put, if a neighbor's house is sold at a discounted price, it will affect the housing prices in my neighborhood. If the appraised value of all the houses in an entire neighborhood is lower than the bank loan amount, it creates widespread negative equity, leading to widespread defaults by homeowners, who would rather give their houses away to the bank. This results in even more houses entering the foreclosure stage, creating an exponential spread of the crisis. According to the report from Rulian Asset Management, Maang Shouse's concerns may become a reality. In 2019, the average transaction price of foreclosed properties was basically 90% of the market price. By last year (2025), the average foreclosed property nationwide had been discounted by 25% to be sold, the lowest in the past seven years. Looking at each quarter, the decline is even more pronounced. In the last quarter of 2024, the discount on foreclosed properties was still 81%, but by the second quarter last year, it had fallen to 76%. And in the last quarter of 2025, the price of foreclosed properties was approximately 74% of the market value.

[Speaker 3]: Banks are naturally unwilling to accept this new pricing system, but they have no way to control the market and have to let the report speak for itself. In the first auction last year, banks were generally only willing to offer an 86% discount, which wasn't much of a decrease compared to 2020. The market clearly didn't accept the banks' offer; only 11% of the houses were sold at this high price. By the second auction, banks were eager to liquidate their housing assets and started offering 70% discounts. Only then were consumers willing to enter the market. The transaction rate increased by nearly 18%. A large number of consumers also choose to wait until the final liquidation stage to buy at rock-bottom prices. This is reflected in the data: most consumers acquired properties during the concentrated liquidation stage, and the number of participants in the liquidation increased by 143%.

[Speaker 3]: The more serious problem is that the increasing number of foreclosed properties not only negatively impacts housing prices and neighborhoods, but also backs the sales of new homes, completely destroying existing real estate companies' ability to survive. In 2022, nearly 800,000 people participated in property auctions nationwide, a 50% increase year-on-year. However, the average number of participants per auction only increased by 0.79 people. Many people were viewing the properties, but few were buying, and transaction prices continue to be discounted. According to most people's psychological expectations, there is still room for housing prices to fall here.

[Speaker 3]: I want to defend Maang Shouse. His suggestion to stop foreclosures is not about hoping the government will use administrative means to artificially maintain real estate prices. Anyone with even a little economic sense knows that the only result of that could be a complete loss of liquidity in the housing market, a sharp decline in unofficial transaction prices, and both new and second-hand housing markets collapsing together. Is that Maang Shouse's real intention? It is that banks, having made a fortune from mortgages, should now bear some social responsibility instead of rushing for quick losses, dragging down ordinary people along with the real estate industry.

[Speaker 3]: When we look at his proposal, the banking industry has accumulated 8 trillion yuan in interest income from resident mortgages in the past ten years. Now it's time to share the burden with struggling residents. First, for struggling families, allow a certain grace period for repayment. Second, for unemployed individuals and families with significantly reduced income, suspend mortgage payments and extend payments, giving them two or three years of grace. For assets that do need to be disposed of, banks should transfer them to their holding companies and not allow them to enter the market for public auction. This prevents further impact on secondary market prices. This temporary relief policy does not mean that borrowers don't have to repay, but rather extends the repayment cycle, waiting for economic recovery and asset value appreciation. This is better than banks rushing to deal with non-performing assets and immediately causing asset losses, and it also preserves basic living standards and hope for the people. Considering that the vast majority of Chinese people's assets are houses purchased with loans...

[Speaker 3]: I somewhat agree with Maang Shouse's viewpoint. However, considering the performance indicators of state-owned banks, I don't believe banks will voluntarily take responsibility for stabilizing assets in 2026 unless the People's Bank of China plans to use comprehensive inflation to alleviate debt. Chinese nominal housing prices, led by foreclosed properties, will continue to fall towards real market transaction prices. If you want to know the true market value of your house, it's best to heed Maang Shouse's advice and carefully study this foreclosure data analysis report.

[Speaker 3]: Next, I'll briefly introduce some key figures. Although all foreclosed properties have significant discounts, the liquidity of different real estate properties varies. Last year, the average discount on residential properties was 76%, but the transaction rate remained at 21%, making them the easiest assets to sell. This data shows that Chinese people are not unwilling to buy houses, but simply believe that current housing prices are too high. At the same time, the transaction price of construction land was only discounted by 20%, indicating that some developers are still willing to buy land and believe they can make money back. However, these new buildings may have higher construction standards, indirectly lowering the value of existing properties. Even worse, the transaction rate for commercial real estate is less than 10%. Most commercial properties... developers promoted commercial real estate with the slogan "one investment supports three generations." However, judging from the current situation, most commercial properties haven't even supported half a generation and probably cannot survive due to the impact of e-commerce. The parts most relevant to ordinary people are residential and commercial properties.

[Speaker 3]: Let's look at the situation in several cities by combining the residential data, starting with first-tier cities. Guangzhou had the most listed foreclosed residential properties last year, nearly 10,000. Shanghai only had 3,300, and Shenzhen and Beijing both had around 5,500. This listing data reflects the dire situation of local residents, suggesting that people in Guangzhou face greater financial pressure. From a transaction price perspective, Shenzhen's foreclosed properties sold at a transaction price of 82%, with a transaction rate exceeding 50%. This indicates a strong demand for housing in Shenzhen, and houses are still a liquid asset; at least an 80% discount can still yield cash. Coming from Shenzhen and Guangzhou, it's clear that Shenzhen is undoubtedly the leading central city. As for Beijing, there are no surrounding cities that can compete with it, but the housing price discounts are the steepest, requiring a 73% discount to complete a transaction. This shows that if a city relies too much on the service industry, it's difficult to maintain employment and consequently, housing prices during economic downturns.

[Speaker 3]: In second-tier cities, there are significant regional differences in transaction rates. The cities with the lowest transaction rates are Xi'an, Taiyuan, Nanchang, and Guiyang, all concentrated in the northwest. Except for Xi'an, the transaction rates in other northwestern provincial capitals are only in single digits, indicating that the 70-80% discount is not the end point for housing prices in the northwestern region. The cities of Nanchang and Guiyang rank 27th and 28th, respectively, and are struggling, which is expected. Previously, they were trying to catch up with the surge in housing prices, but now they are lagging behind. As for Hefei, while it has been integrating into the Yangtze River Delta in recent years and has attracted a number of industries, its transaction rate is only 14% at a 17% discount level, ranking 29th among 35 second-tier cities, which is somewhat surprising. Perhaps people in these cities consider Hefei their provincial capital and prefer properties in Nanjing or Shanghai. In third-tier cities...

[Speaker 3]: The differentiation is even more pronounced. When comparing cities, the transaction rate is 50%, similar to Shenzhen. Additionally, five cities – Dali, Kunming, Baotou, Lanzhou, and Changsha – have single-digit transaction rates. These five cities, while not provincial capitals, share a severely undiversified industrial structure with few private enterprises. For example, Baotou mainly relies on steel and rare earth resources. And while Changsha has been trying to develop an automobile industry chain in recent years, its economy still depends on traditional industries. As for China Tobacco, it contributes to its tax revenue. As new industries further concentrate in metropolitan areas, cities with single industries cannot retain either capital or talent.

[Speaker 3]: Looking at commercial properties, Shanghai and Guangzhou have transaction rates exceeding 20% as established major cities. Locals there clearly retain offline consumption habits. Similarly, as an established major city, Beijing's transaction rate is lower than Shanghai and Guangzhou. Shenzhen's transaction rate is lower, possibly due to its younger population structure and their preference for online shopping. In established cities, the transaction situation for commercial properties is similar to residential properties, with northwestern cities and Hefei in the Yangtze River Delta lagging behind, only slightly better than the situation in the northwest. In third-tier cities, comparing them is pointless. More than half of the cities have commercial property transaction rates below 10%, making commercial properties completely stagnant. Only three cities have transaction rates exceeding 20%: Nanjing, Jinan, and Wuxi. Wuxi's ability to surpass two Yangtze River Delta cities and raise its transaction rate to 31% is likely due to its geographical location. Against the backdrop of a mass migration of the entire northeast population southward, Jinju (likely a misinterpretation in original text, retaining as per transcript) connecting the northeast and north China, and close to the sea, was able to retain a sufficient number of residents. Furthermore, as mentioned earlier, the transaction rate for shops in Lanzhou was less than 2%, and there were two other cities nationwide with even worse figures. It seems that ordinary commercial real estate isn't even the hardest type of property to sell. Parking spaces and three-level shops are the assets that are truly stuck.

[Speaker 3]: According to the report, in 2025, a total of 320,000 parking spaces or three-level shops were listed, with an average transaction rate of only 6.89% nationwide. The report's authors didn't even bother to provide data for individual cities as everyone was equally suffering. So, if someone wants to buy your parking space, it's best to accept whatever they offer. I should remind you that the report I referenced does not provide a complete picture. At least my list of first, second, and third-tier cities doesn't include Suzhou, where I live. To see a comprehensive analysis of foreclosure statistics, you need to look at data from other institutions. For example, the report from the Zhongtai Research Institute includes data for Suzhou.

[Speaker 3]: Additionally, let me share another important piece of data: a special report on January 16th mentioned that 50 trillion yuan in fixed deposits will mature in 2026. At the same time, because of a surplus of funds, banks have little incentive to absorb deposits through reliable loan businesses. Some banks have stopped offering five-year fixed deposit services, and more banks have lowered fixed deposit interest rates to 1.5% or lower, leading to a situation where funds have nowhere to go.

[Speaker 3]: When I saw this news, I immediately realized that a debate from a few years ago now has a conclusion. During the real estate boom a few years ago, some people said that real estate was a huge reserve pool that could absorb excess funds. Others said that real estate was a huge money-printing machine, using the modern banking system to create credit money. Now it seems that real estate is indeed a money-printing machine, creating astronomical amounts of currency, and of course, also creating astronomical amounts of debt. The current problem in China is that the currency and debt are held by different groups: the group that cashed out earlier holds the currency, while the group that got in late bears the debt. The group that possesses wealth doesn't want to re-enter the real estate market, so their purchasing power is like a caged tiger, unable to find a way out. Meanwhile, the hundreds of millions of people burdened with mortgages are actually in a negative equity situation. The problem just hasn't been fully exposed yet because there hasn't been a mass sell-off. Maang Shouse is worried that the foreclosure crisis will bring the problem to the forefront.

[Speaker 3]: Thank you for watching. This concludes episode 1015.