China has introduced a comprehensive set of new housing rules that fundamentally alter property financing and sales. These regulations, issued by the housing ministry, natural resources ministry, and financial regulators, aim to transition the market away from a traditional presales model. Under the new rules, developers generally cannot begin preselling apartments until the main structure is topped out, and more significantly, banks must withhold buyers' mortgages until the project is fully completed. Previously, developers could access down payments and mortgage funds once buildings were topped out, a process that takes six to twelve months between topping out and practical completion, according to one private developer. This change is expected to substantially delay fund disbursements to developers.
The new measures are designed to enhance buyer confidence and protect homebuyers by reducing risks associated with home delivery and ensuring fund safety. Analysts view this shift as a "double-edged sword" for real estate developers, as tighter regulations will squeeze cash inflows in the short term, even as the reforms aim to stabilize prices and stimulate sales over time. For example, official data shows that deposits, advance receipts, and mortgage proceeds accounted for 44.6% of developers' total funding pool (4.57 trillion yuan or $679.98 billion) in the January-July period, surpassing self-raised funds which were 36.1%.
Fang Chengqi, chief analyst at Caitong Securities, estimates that developers' average levered return on investment could drop by about 60% due to these changes, calling the People's Bank of China's new rules a "major near-term negative catalyst." The market is expected to become dominated by large-scale, low-leverage, government-owned developers, while aggressive mid-tier private developers are likely to face significant challenges. Additionally, the People's Bank of China and the National Financial Regulatory Administration have extended the maximum term for individual home loans from 30 to 40 years, providing more flexibility for borrowers.
While the reforms represent a significant shake-up to a financing model that fueled decades of rapid construction, they are seen as a strategic move to address the vulnerabilities exposed when cash-strapped builders failed to deliver apartments. The policy aligns with China's 15th Five-Year Plan (2026-30) and aims to establish a new development model for the real estate sector. The capital market has shown a positive initial response, with A-share real estate stocks rallying, and some companies like Shenzhen Properties & Resources Development Group Ltd. reaching their daily limit, surging 10.05% to 10.07 yuan ($1.50) per share.
