(Yicai) Jan. 22 -- A number of Chinese state-owned enterprises controlled by local governments have begun snapping up foreclosed homes in bulk at bargain prices as sinking prices and weakening sales in the country's judicial auction housing market add pressure to local real estate markets.

Guangzhou Nansha Urban Operation bought over 60 apartments in a residential project in Guangzhou, southern Guangdong province out of 88 that were recently put up for auction. It paid between CNY6,657 (USD956) and CNY7,629 per square meter, far below the asking price of between CNY10,000 (USD1,436) and CNY30,000 per square meter for pre-owned homes in the same neighborhood.

In another example, a company owned by the Huzhou city government in southeastern Zhejiang province bought 37 properties in Haikou, southern Hainan province that were auctioned off in September last year at the reserve price of CNY9,286 (USD1,333) per square meter. This was well below the developer’s reported average new-home price of CNY33,000 per square meter that was submitted to regulators.

“Foreclosed properties are often priced significantly below market levels, giving state capital a low-cost way of acquiring quality assets,” a post-investment manager in the real estate arm of a large SOE told Yicai. “At the same time, local government-backed firms that buy auctioned properties can to some extent help ease the downward pressure on home prices and act as a ‘stabilizer’ as the property market deleverages and clears risk.”

The impact of SOEs’ bulk buying in judicial auctions ultimately depends on what they do with the properties afterwards, the person said. If the homes are used as subsidized housing to assist people with low incomes, for attracting talent, or if they are released to the market later in a concentrated batch, each approach will have a different impact on the real estate market.

Some 719,000 properties were listed on China’s judicial auction market last year, a drop of 6.6 percent from the previous year, according to data from the China Index Academy. Of these, 169,000 units were sold, down 4.4 percent. The total transaction amount plunged 23.6 percent to CNY253.6 billion (USD36.4 billion). The average discount rate for auctioned homes was 74.1 percent, meaning buyers paid on average only about 74 percent of the properties’ assessed value.

Editors: Tang Shihua, Kim Taylor