China's seemingly healthy real-estate market recovery is being eclipsed by the increasing number of returned property.

While many big cities like Xi'an and Nanjing are all witnessing the same phenomenon, Beijing seems to be taking the heaviest toll with some projects' ratio of returned property as high as over 30 percent.

After being asked about the issue, developers of the above-mentioned projects maintained sales are strong, citing individual company's acts of returning many apartments at once and old property owners' preference for more favorable promotion terms as reasons for the concentrated returns.

"The increase of property returned is connected with the fact that although the market is recovering the outlook is still fuzzy," said Dong Fan, director of the Real Estate Research Center in Beijing Normal University.

He said the specific reasons are rather complicated, such as earlier owners' various practical considerations and lack of confidence in the future market; property quality and contract disputes are also common causes for returning property.

Property owner's request of return is being more easily met than before, thanks to developers' pitch strategy and the government's intervention, which may also be contributing to the increased numbers.

Despite the many explanations, some insiders worry that false mortgages filed by developers are behind the trend: property developers use their employees or relatives' identities to buy properties with loans cheated from banks, and then return the property for sale when the market recovers. By doing so, developers can not only obtain capital, but create false prosperity in the property market.

False mortgage can cause serious consequences, as bad debts will increase if developers face financial strain and can't pay back the loan. According to the analysis of the Industrial & Commercial Bank of China's Consumer Credit Department cited by the Central Bank, of its non-performing assets of personal property loans, 80 percent are caused by false mortgage.

But experts state false mortgage is by no means the major reason for the high ratio of returned property, because technically, the practical filing operation is rather difficult and institutions have strict measures to counteract these claims.

Competent departments of real estate markets in many cities recently stepped up to regulate the market order, with false mortgage among their major concerns.

False mortgage application is hard to detect at the initial stage, but an investigation can begin in cases of failed repayment, according to an official.

The official also revealed that regulators currently mainly rely on observing unusual traces in property transactions and establishing multiple verifying sections.

Experts believe an overall investigation, including the applicant's indebtedness and social activities, tracking how the loan is used and a framing contingency plan are all necessary in order to avoid risk.

Meng Xiansheng, lawyer of Ren He Law Firm in Beijing, adds that the involvement of judicial organs is also very crucial. In late April of this year, Beijing Second Intermediate People's Court passed the sentence on a false mortgage case in which the developer cheated 750 million yuan in a loan from Bank of China. This case will surely raise the alarm in the real estate market.

Source: China Daily