China tightens housing presale rules, links mortgages to completed projects

China has unveiled a broad set of measures to reduce property developers' dependence on funds collected from buyers before construction is complete, a practice that has come under intense scrutiny since the sector's downturn began in 2021. The new guidelines, issued by the central bank and the financial regulator, stipulate that a homebuyer's mortgage will only be released after the housing project has been fully completed. This marks a significant shift from the decades-old presale model, which allowed developers to sell homes early to finance their debt-fuelled, high-turnover operations.

Separate directives call on local governments to actively promote the sale of finished units, a move intended to "fundamentally prevent delivery risks." The policy package is seen as an attempt to mend the trust crisis in the sector by addressing homebuyers' fears of stalled projects, which have been a major source of social tension and market pessimism.

The property sector, once a key engine of economic growth, has been in a prolonged slump following a government campaign to curb developers' heavy borrowing. This led to a liquidity crunch, with home prices continuing to fall and property investment still plunging more than five years into the downturn. The crisis has also weighed on the broader economy, as shrinking real estate values have dampened household consumption, leaving the manufacturing powerhouse increasingly reliant on external demand.

State media, citing unnamed officials, said the old sales system is no longer suitable and requires reforms to strengthen the supervision of presale funds. The new measures also aim to protect buyers by making financial institutions more accountable. Each housing project's financing will be linked to a lead bank, which will monitor project funds and organise loans. In a bid to ease the debt burden on buyers, the maximum term for personal mortgage loans has been extended to 40 years from 30 years.

Analysts suggest the policies will likely favour large developers with healthy liquidity, who can handle longer sales and payment cycles. Smaller developers with limited cash reserves may be forced to exit the market or change their business models. Additional draft measures reiterate the call for financial institutions to meet developers' "reasonable financing needs" and urge trust firms to treat private and state-owned developers equally. The securities regulator has also pledged support for real estate financing, including guidelines to support listed firms in refinancing, mergers, and reorganisation, while vowing to resolve risks and improve tools to handle bond defaults.