China has moved to unwind the presale system that has underpinned its property market for decades.
The government has released a package of reforms aimed at stabilising a downturn that has weighed on consumer demand for years.
A notice issued jointly by the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources and the National Financial Regulatory Administration (NFRA) directs local authorities to prioritise completed-home sales over the presale model that has long dominated Chinese development, according to the South China Morning Post.
Under the presale system, buyers have typically paid for apartments years before construction finishes, but this arrangement left households exposed when cash-strapped developers failed to deliver, as documented by Caixin Global.
Where presales continue, individual buildings must now be topped out before units can be sold, and buyers’ down payments, mortgage proceeds and other purchase funds must be placed in supervised accounts.
Two companion documents released the same day covered financing: the People’s Bank of China and the NFRA set new rules on development loans, while the securities regulator pledged support for listed developers pursuing mergers and restructurings.
The lending rules cap development loans at five years for presale projects and seven years for completed-home and commercial projects, and introduce a lead-bank system under which one bank is designated to provide or coordinate financing for each project.
Mortgage funds will also flow later under the changes. Loans for completed homes will only be released after a sale is registered, while loans for pre-sold homes must wait until the project itself is registered as complete.
“Buyers would ‘get the home first, then repay the loan’,” a central bank official said in comments published alongside the guideline.
The maximum mortgage term was also extended, from 30 years to 40.
Local governments have been told to shorten approval times and roll out a “certificate on handover” system, so homebuyers receive ownership papers on the day they move in.
Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, described the package as going beyond what was anticipated.
“The policies announced today are stronger than what the market expected,” Mr Zhang said, according to the SCMP.
He added that China’s sluggish domestic demand was “to a large extent” caused by the troubled property sector, and that the measures suggested policymakers recognised the urgent need to stabilise the market.
Projects on newly transferred land, and those on land already sold but without a construction planning permit, are now expected to prioritise the completed-home sales model, with projects that already hold permits also encouraged to adopt it.
This story draws on reporting from the South China Morning Post, Xinhua/China SCIO and Caixin Global.