Foreign Property News | Posted by Si Thu Aung
Guangdong province is calling for the cancellation of a decades-long property pre-sale system that has played a primary role in supporting China’s real estate developers.
The provincial branch of China’s Ministry of Housing and Urban-Rural Development (MOHURD) issued a notice last week to solicit developers’ views on phasing out the system, according to an account state-owned news site thepaper.cn Since 1994, China has allowed home builders to receive the entire sales proceeds up front before the construction completes, which they then use to finance further land purchases and developments.
The notice indicated that the current system creates risks to the economy from unfinished developments, unruly sales activities and unfair competition. The housing regulator recommended that the high levels of developer leverage bred by the system should be reduced by gradually moving away from pre-sales.
Titled “Emergency Notice on Opinions Regarding Pre-sales Permits for Commodity Houses,” the notice is also said to have been circulated by local governments in Hubei, Sichuan, Jiangsu, Henan, and Liaoning provinces, in addition to Guangdong.
In response to the regulatory news, shares of the Hong Kong-listed Chinese developers slumped on Monday just before China’s mid-autumn festival holiday.
Country Garden Holdings Co, whose meteoric growth relied largely on pre-sales, led with a share price drop of 5.57 percent. Shimao Property fell 5.22 percent, followed by CR Land’s 4.83 percent, while Sunac lost 4.02 percent and Guangzhou-based Agile Group declined 3.88 percent.
The equity impact of the potential policy overhaul came as investors feared that, if implemented, the end of pre-sales would place further strain on China’s debt-laden developers. Analysts estimate that mainland-based developers are collectively facing a record $23 billion maturity wall in the first quarter of 2019, after Chinese authorities began reducing approvals for new bond sales and restricting borrowing from shadow banks earlier this year.
The Chinese media reacted to the news with caution. An article in the Beijing News urged the authority not to act with haste, while the official Guangzhou Daily noted that the changes under consideration are still at the opinion-gathering stage.
Ref : Property Report
