China orders six provinces to rethink housing pre-sale rules
October 09, 2018 - Guangdong
Six Chinese provinces have been told to consider a property pre-sale system that enables developers to secure funds before project completion and decide whether it should be scrapped or retained, a housing ministry document seen by Reuters said.
Under the system, developers can apply for a pre-sale permit to begin sales even if they have only made a fraction of their total investment in the project.
The ministry issued the document instructing local housing bureaus of Hubei, Sichuan, Jiangsu, Henan, Guangdong and Liaoning provinces to make an "in-depth" study of the pre-sale system, and set out reasons why it should be retained or scrapped.
"If the pre-sale permit (system) is advised to be maintained, or if the requirements for pre-sale permits should be raised, thorough arguments supporting its legitimacy and necessity should be given," the document said.
"If it is advised to be scrapped, supervision measures should be studied accordingly at the same time."
Chinese developers raised 3.5 trillion yuan in sales deposits and pre-sale funds in the first eight months of the year, up 15% year-on-year.
A termination of the system would be a sign of government intent to tighten developer financing amid a multi-year government crackdown on financial risks.
In a worst-case scenario of a complete overhaul, "about a third of small developers will disappear," said Zhao Ke, property analyst at China Merchants Securities Co. "It will substantially stretch developers' cash flow and intensify their funding pressure."
It’s not the first time authorities have looked to curb pre-sales. In 2016, Shenzhen sold its first parcel of land with a requirement only finished properties could be sold, billed by the official Xinhua News as an ‘exploration’ of reforming the pre-sales system.
Photo : AFP - atimes.com
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