UBS Warns China Could See 2.4 Million Property Foreclosures by 2027 as Loan Defaults Rise
China’s prolonged property slump may deepen further, with UBS forecasting millions of loan defaults that could sharply increase the number of foreclosed homes across the mainland. According to John Lam, head of China property research at the Swiss investment bank, more than 2.4 million apartments could be seized from small businesses by 2027 as financial pressures build.
Small enterprises in China commonly use residential property as collateral for bank loans, tying the health of the business sector closely to the real estate market. As property values fall and the wider economy weakens, many of these companies face a mounting risk of defaulting on their loans, potentially triggering a wave of repossessions.
Forced Sales Could Weigh Heavily on New Home Markets
Lam cautioned that the sale of such a large volume of foreclosed units could affect as much as one quarter of China’s annual new home sales. In a market already grappling with declining demand and oversupply, this influx of distressed properties could place additional downward pressure on prices.
A flood of bank-seized homes typically leads banks to prioritise quick sales, which often means steep discounts. This, in turn, drags down the value of second-hand homes, undermines buyer confidence, and further suppresses demand for newly built apartments. Lam described the situation as a significant risk to China’s property recovery timeline and one that could prolong market weakness for several more years.
Weak Economic Conditions Add to the Stress
China’s broader economic challenges are amplifying the risks within the real estate sector. Slowing consumer spending, subdued business activity, and a cautious investment climate have left many small firms struggling to meet financial obligations.
For companies that rely on single-property collateral, declining home values reduce the amount they can borrow or refinance, tightening liquidity when they need it most. Once defaults occur, banks are left holding assets that may continue to lose value, creating uncertainties for lenders and borrowers alike.
Structural Issues Keep Pressure on the Housing Market
The projection of large-scale foreclosures comes at a time when China’s housing sector has already been weakened by developer liquidity crises, stalled projects and chronic oversupply in many regions. The government has introduced targeted support measures to stabilise the market, but analysts say these may not be enough to counteract the effects of an economic slowdown.
Lam added that rising foreclosures could complicate ongoing efforts to restore confidence, as buyers remain cautious about investing in property during periods of sustained price declines. The risk of additional supply entering the market at discounted rates may deter households from making long-term financial commitments.
What UBS Expects Going Forward
UBS believes the coming years will test the resilience of China’s banking and property systems. The forecast of 2.4 million foreclosures highlights the scale of potential stress still hidden beneath the surface.
Lam emphasised that while the situation is not yet critical, it requires close monitoring. If loan defaults accelerate, banks may face growing pressure to dispose of assets quickly, while developers could struggle to maintain stable pricing in a weakening market.
The interplay between small business performance, household wealth and the health of the real estate sector makes Chinese property particularly sensitive to macroeconomic shifts. UBS warns that resolving these issues will require sustained policy support, improved liquidity for small firms and renewed confidence among homebuyers.
