China rewrites presale housing financing rules

China’s housing regulators rewrote the cash-flow mechanics of apartment presales last week, cutting off a funding channel that developers had relied on for years. Two policy packages issued on Aug. 28 tighten supervision of presale proceeds, require mortgage and down-payment funds to stay in regulated accounts, and pair that with new bank-lending rules meant to finance construction through dedicated project loans instead. Chinese state media and Caixin said the changes are designed to protect buyers and push the market toward completed-home sales after years of delivery failures. Early market response in Shenzhen was stronger inquiry traffic, with one local agent telling Securities Times that online consultations rose nearly 50% and offline viewing conversions rose 20% in recent days. ### Why did Beijing change the presale rules now? China’s Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources and the National Financial Regulatory Administration said on Aug. 28 that local governments should steadily advance reform of the commercial housing sales system. The notice said presale projects must meet stricter conditions, including completion of the main structural works before units can be sold in advance. It also said authorities should strengthen supervision of presale funds and promote completed-home sales “in an orderly manner.” (zjj.changzhi.gov.cn) China Daily said the package covers the full chain of commercial housing sales and property financing and is aimed at accelerating a new development model for the real estate sector. The newspaper said the policy focus is on better protecting buyers’ money, reducing delivery risk and giving financing support to sound projects. ### What changes for the money paid by homebuyers? (zjj.changzhi.gov.cn) The Aug. 28 housing notice said buyers’ down payments and personal mortgage funds for presold homes must be deposited in supervised accounts. Caixin reported that, in practice, mortgages for presold homes will be withheld until projects are completed, preventing developers from using homebuyers’ mortgage proceeds as an early construction funding source. (chinadaily.com.cn) That is the core rewrite. Under the older model, developers could collect substantial cash during presales and recycle it into construction and other obligations. Under the new framework, project cash is meant to stay ring-fenced while banks provide development loans tied to construction progress, repayment schedules and designated project accounts. ### If developers get less presale cash, where does financing come from? (zjj.changzhi.gov.cn) The People’s Bank of China and the National Financial Regulatory Administration issued a separate opinion on Aug. 28 overhauling real-estate credit management. The document creates a full-chain lending framework covering development, sales and operations, and requires a “lead bank” system in which each project has one main bank overseeing closed-loop fund management. (jrj.sh.gov.cn) The NFRA’s trial rules for commercial housing development loans said each project can have only one lead bank, that project-related funds must be managed through designated accounts, and that loan disbursements must match physical construction progress. The rules also said first principal repayment should, in principle, come after project completion filing, with longer loan tenors allowed for completed-home sales projects than for presale projects. (jrj.sh.gov.cn) ### Does this effectively push China toward selling only finished homes? The Aug. 28 housing notice stops short of banning presales nationwide. But it says newly transferred land for commercial housing projects, and already transferred land that has not yet obtained a construction planning permit, should prioritize completed-home sales. Projects that already have planning permits are encouraged, rather than required, to adopt completed-home sales. (nfra.gov.cn) Caixin said analysts viewed the package as a practical shift away from the presale model that had financed rapid expansion for decades. China Daily separately said completed-home sales are being promoted to deliver “what buyers see is what they get” and to reduce handover risk. ### Are buyers already responding? Shenzhen provided one early readout on Sept. 2. Securities Times, in a report carried by Sina Finance, quoted a veteran agent in Futian district saying online consultations had risen by nearly 50% in recent days and conversion to offline viewings was up 20%. (zjj.changzhi.gov.cn) The same report said completed-home inventory accounted for 42.1% of Shenzhen’s new-home market in August, up 3.1 percentage points from July, according to Leyoujia Research Center data. (caixinglobal.com) The next step is implementation. The Aug. 28 sales notice says the new rules apply to newly transferred land and to projects that have not yet obtained construction planning permits, while projects that already have permits follow previous presale and fund-supervision rules. (zjj.changzhi.gov.cn) (finance.sina.com.cn)