(Yicai) July 25 -- Activity in China's foreclosure home market is heating up with rising transactions and falling prices as the big discounts in second-hand homes are spreading to properties whose previous owners failed to repay the mortgage.

In the first half, the number of homes entering the foreclosure market reached 184,000 units, up 3 percent from a year earlier, and such sales jumped 8 percent to 53,000 units, according to the latest statistics from the China Index Academy.

The average transaction price was CNY9,084 (USD1,250) per square meter, down almost 7 percent. The average starting price for the foreclosure process equaled 76.9 percent of the appraisal value, down from 82.8 percent from a year ago.

An insider at the real estate institute said to Yicai that the decline in transaction prices aligns with the general property market downturn. Owners of second-hand homes tend to slash their prices to attract more bidders, and the foreclosure market also needs to respond to catch potential buyers' attention, the person added.

From January to June, about 50.4 percent of foreclosure homes needed two auctions to exchange owners, up about 8 percentage points from a year earlier. Only nearly 38 percent of homes were successfully sold during the first auction, down nearly 9 percentage points, implying that in order to get a better deal, buyers are more patient this year, as the second round usually involves a steeper discount. 

Foreclosure prices in China tend to start at 70 percent or higher of the appraisal price. If the first auction fails, the starting price of the second auction will be discounted by another 20 percent.

The boost in transactions is explained by lower starting prices of foreclosure homes than the local average of similar homes, which should be helpful in attracting more bargain hunters, the insider said. 

On the other hand, the same person pointed out that the gradual standardization of the foreclosure process has made buyers less exposed to various legal risks so they have become more willing to enter the market.

In the first half, third and fourth-tier cities had the biggest number of foreclosure transactions, followed by second-tier cities. First-tier cities have less room for discounts right off the bat, as such reductions averaged just 21 percent, while second-tier cities allowed for 25 percent cuts on average, per the CIA.

Editors: Tang Shihua, Emmi Laine