Shares of Chinese real estate developers plunged following new regulatory measures aimed at curbing presales of unfinished properties, signaling a major shift in the country’s property market financing. State-backed developers China Resources Land and China Overseas Land saw their share prices drop more than 9 percent in Hong Kong trading, while smaller firms including China Jinmao, Greentown China, and Yuexiu Property experienced double-digit declines.
The regulatory changes, announced on Friday, restrict the ability of developers to collect large deposits from buyers and prevent mortgage disbursements until construction is complete. This represents a departure from the long-standing practice in China where property sales largely rely on presales of unfinished units to fund ongoing construction. The authorities cited a need to reform the presale model, with an official saying that the existing structure “no longer fits the current market.”
Local governments were also instructed to prioritize sales of completed properties to reduce delivery risks to buyers. To assist developers in transitioning to new financing mechanisms, China’s securities regulators pledged support for refinancing, mergers, and restructuring efforts. Additionally, the maximum mortgage term was extended from 30 to 40 years.
The move follows years of financial distress across China’s real estate sector, which has been battered by a collapse in property prices and the failure of major developers, notably the highly indebted Evergrande Group. The fallout from these difficulties has caused delays and stoppages of projects, leaving many homebuyers unpaid or unable to take possession. Public confidence in the property market has been severely undermined.
The presale system, in which buyers pay significant sums upfront for properties that may take years to complete, has been widely criticized. According to industry data, about 90 percent of new homes were sold before completion in 2021, though this share fell to 68 percent last year. Regulators’ new rules impose low deposit thresholds, mandate that buyer funds be held in supervised accounts, and require mortgages to be released only after project completion. These restrictions aim to reduce overreliance on presales while avoiding a full ban, bringing China’s approach closer to practices seen in markets such as the US, UK, and Europe, where presales carry consumer protections and lower upfront payments.
The Chinese property market’s contraction has had broader economic repercussions. Real estate-related sectors previously accounted for over 8 percent of GDP but declined to under 6 percent in the first half of this year, a level unseen since before the 2008 financial crisis. New home sales by floor area fell nearly 12 percent in the first seven months of 2024, while investment in property development dropped more than 19 percent, signaling a deeper downturn. This malaise has weighed on overall economic growth, which missed official targets in the second quarter.
Compounding the challenges are high property prices relative to incomes, with major cities like Beijing, Shanghai, and Shenzhen showing affordability ratios comparable to some of the world’s most expensive housing markets. At the same time, an excess inventory of unsold homes—estimated at the equivalent of 4 to 6 million units as of early 2025—suggests a prolonged period of subdued demand.
While the new regulatory measures may help prevent a further rapid deterioration in the sector, analysts and officials acknowledge that reviving China’s property market will be a complex and lengthy process. The government’s recent efforts mark a tentative step toward stabilizing a crucial but beleaguered economic engine.