1155 | 283 | Why foreclosed housing devalued in China? Assessment based on property-rights risks

The judicial auction is the only way to deal with foreclosed properties in China. Yet the trend of widespread depreciation of foreclosed properties in many cities may lead to a systemic risk to China’s housing finance system. However, few studies have explained why foreclosed properties depreciate compared to second-hand properties under similar conditions. This study assesses three types of property-rights risks in judicial auction: cost risk (CR), acquisition risk (AR) and usufruct risk (UR). Through hedonic pricing model, it is found that property-rights risks will weaken homebuyers’ willingness to pay, which is reflected in the auction price in the form of depreciation. Meanwhile, the credible commitment given by the court can effectively reconcile property-rights risks, especially for those high-risk properties such as small property rights housing and unauthorized housing whose transaction is highly dependent on the credible commitment given by the court. This paper suggests that local courts should actively protect the property rights of homebuyers and disclose the property rights information of foreclosed housing as much as possible to eliminate the information asymmetry, which will be helpful to improve the auction price and resolve the debt risk to some degree in the housing system of China.

Xingyu Qian
School of Public Policy and Administration, Chongqing University

ID Abstract: 283

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