In Depth: The Scam That Turned China’s Housing Slump Into a Cash Machine

Li Qing's experience selling her apartment in Guilin illustrates a troubling trend in China’s real estate sector: financial speculators exploiting the downturn by engineering sham sales to extract cash from inflated mortgages. Enticed by a promise of a quick, hassle-free sale for 900,000 yuan ($125,000), Li was asked by a real estate agent to sign two sales contracts and accept a “registered person” on the mortgage paperwork who was not the actual buyer. The deal became more suspicious as it dragged on and the buyer cycled through multiple “registered persons” due to failed credit checks. When the transaction finally completed, Li discovered the scam: the public contract stated a greatly inflated price of 1.51 million yuan, allowing the buyer to secure a much larger mortgage (1.28 million yuan) than the property’s real value. After all fees, the buyer walked away with both the apartment and over 300,000 yuan in cash skimmed from the mortgage—reflecting a rampant financial arbitrage scheme impacting China’s housing market [para. 1][para. 2][para. 3][para. 4][para. 5].

As home prices drop, these fraudulent schemes have flourished by exploiting the gap between low actual sale prices and artificially high appraisal values. Speculators employ desperate sellers and proxy borrowers to siphon off excess funds from oversized bank loans, distorting property market data, crowding out legitimate buyers, and introducing significant bad debt to banks’ balance sheets. This environment is fostered by China’s slumping property market since late 2021, where sellers, under pressure, slash prices to raise cash, creating so-called “bamboo shoot properties” ripe for exploitation. Motivated by needs such as repaying other debts or propping up failing businesses, buyers work with financial intermediaries to inflate mortgage amounts, utilizing fake sales prices and stand-in borrowers [para. 6][para. 7][para. 8][para. 9][para. 10].

A common technique described is the “property for financing” model: a home worth 3 million yuan is bought using bridge financing, followed by securing loans totaling 4.5 million yuan, then repaying the initial bridge loan and pocketing the surplus. Easing mortgage requirements have fueled these exploits. For example, in May 2024, Beijing slashed minimum down payments for first-time buyers to 15%, which by September was extended to all buyers. This has significantly reduced the upfront capital needed to engineer such deals, opening the door even wider to manipulated sales [para. 11][para. 12][para. 13][para. 14].

Real estate agents are complicit as key enablers, attracted by fast commissions and bonuses of up to 20,000 yuan per successful lead. They often act as intermediaries, moving transactions to unaffiliated agencies and leveraging dual identities—one as a major franchise, another for illicit deals. Their main role becomes locating distressed sellers willing to accept large discounts, with many properties in cities like Guangzhou selling for 15–30% below their appraised value. Stagnant sales and a glut of pre-owned housing mean sellers are incentivized to accept risky deals, often unaware of the full scheme [para. 15][para. 16][para. 17][para. 18][para. 19][para. 20][para. 21].

A core element of the scam is recruiting stand-in borrowers, often rural migrants with clean credit, who are paid up to 30% of the excess loan. These individuals sign all mortgage documents, receive their cut, and are later abandoned when the real buyer defaults. This practice devastates bank risk assessment models and further skews official market data. While some banks have reduced appraisal values, many look the other way to meet lending quotas. There are no official stats on the prevalence of these deals, but some toxic loans can remain disguised on bank balance sheets for years, posing systemic risks to the broader financial system [para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28][para. 29].