China’s new property presale rules risk prolonging sector downturn

More than two decades after China’s central bank recommended that developers be forbidden from selling flats before they are completed, the government has called time on the presale financing model that contributed to the excesses of the property boom and shattered homebuyers’ confidence in the market.

On August 28, Beijing announced a package of measures designed to rebuild trust in the completion and handover of pre-sold homes, stimulate demand and put the country’s ailing residential market on a firmer financial footing. HSBC said “policy alignment” among regulatory bodies and government ministries suggested the policies were “a concerted step towards a new and healthier long-term housing market model”.

The most important measure was the reform of housing finance. A notice jointly issued by housing and financial regulators raised the threshold for presales to topping out the main structure of the building. It also stipulated that mortgage proceeds would be deposited into supervised escrow accounts that will not be available for use until the project is completed.