The domestic real estate market continues to be sluggish, with reports that banks are offering borrowers mortgage repayment forbearance periods.

China’s real estate market has remained sluggish, forcing the banking sector to face a thorny problem: as property values fall, millions of mortgage loans are in a “mortgage lag” state where borrowers owe more than their homes are worth, increasing the risk of losses for both banks and homeowners. China’s bankers and officials are doing everything they can to contain the impact of the situation.

Citing people familiar with the matter, Bloomberg reports that several state-owned banks have proactively contacted cash-strapped borrowers and offered them up to two years of mortgage repayment grace periods. They also said some banks are working with customers to help them find homebuyers, rather than announcing defaults and seizing properties.

People familiar with the matter said that courts across the country have slowed their handling of mortgage default cases to limit the number of homes subject to forced auction. Some courts have even paused or capped the number of housing mortgage default lawsuits that banks can bring.

These moves highlight that local authorities in China are trying to contain losses caused by the protracted real estate downturn, and there are still no signs that this crisis is ending. The measures have also raised a question: even as defaults continue to rise, the non-performing rate on housing loans at large banks has stayed at around 1%. Does this official figure truly reflect the reality of the problem?

China’s real estate market slump has entered its fifth year. During the earlier buying frenzy, buyers piled on debt to buy homes, but after home prices fell, homeowners found themselves in an awkward position. According to data from the private sector, in major cities such as Beijing and Shanghai, home prices have dropped by more than one-third from their peak, with declines far larger than official figures. In less developed areas, the declines are even more severe. As a result, millions of Chinese people now owe more on their mortgages than the value of their property—this situation is known as “negative equity.”

Bloomberg Industry Research estimates that mortgage loans worth tens of billions of yuan may be in a negative equity state. UBS estimates that by 2027, China could have 3.3 million residential units with negative equity, and that mortgage loans and commercial loans backed by homes could cause losses of as much as 232 billion yuan.