China Overhauls Real Estate Credit Rules in Shift Away From Presale Model

Key facts

• China has issued new guidelines to reform its housing sales system, shifting from presales to selling completed units.
• Mortgages will now be issued only after housing projects are completed.
• Local governments are tasked with promoting sales of completed units to prevent delivery risks.
• The reforms aim to address stalled projects and restore confidence in the crisis-hit property sector.
• Maximum personal mortgage loan terms have been extended to 40 years from 30 years.

China has introduced new guidelines to reform its housing sales system, moving away from the prevalent practice of selling pre-construction units. The directive, issued by the central bank and financial regulator to local authorities, mandates a shift towards selling completed housing units. This change aims to curb delivery risks and restore confidence in the crisis-hit property sector, which has suffered from stalled projects and developer defaults. The new measures also extend maximum personal mortgage loan terms to 40 years from 30 years. Financial institutions will be responsible for project financing, with each project linked to a lead bank monitoring funds and organizing loans. State media cited officials emphasizing the unsuitability of the old presale model and the need for stronger supervision of presale funds. Analysts suggest the policies will favor larger developers and may lead to smaller, less resilient firms exiting the market. China's securities regulator also pledged support for developers' financing needs.