China curbs apartment pre-sales

China curbs apartment pre-sales
27/09/2018 , by , in INTERNATIONAL

China’s debt-laden developers face a potentially devastating blow to their biggest source of financing, as authorities consider putting an end to the practice of selling apartments before they are finished.

Guangdong’s provincial housing authority is considering scrapping so-called pre-sales, according to a document seen bymedia.

The system allows developers to receive the entire sale proceeds upfront before construction has finished, which they then use to finance further land purchases and developments.

The overhaul would threaten to remove the biggest funding channel for developers, after authorities tightened other financing options from bond sales to borrowing from shadow banks. Such a move would place further strain on the sector, which is facing a record $23 billion maturity wall in the first quarter of 2019.

Shares of Chinese developers slumped in Hong Kong trading on Monday. Country Garden, which has relied on pre-sales to help fuel its meteoric growth, fell as much as 8 per cent. China Evergrande Group declined as much as 4.9 per cent, and China Vanke dropped as much as 5.4 per cent.

Authorities want to move away from pre-sales to curb risk in China’s real estate market, which by some estimates accounts for as much as 20 per cent of the country’s gross domestic product.

“The biggest pros of the pre-sales system is to add leverage and expedite turnover, which is necessary in encouraging supply during a housing shortage,” said Chen Jie, a professor specialising in the property market Shanghai University of Finance and Economics. “Yet nowadays, it spurs excessive expansion by developers, which prompts financial risks.”

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