China is contemplating a ban on home pre-sales to mitigate risks and support the property market

    by VT Markets
    /
    May 9, 2025

    China is contemplating a ban on pre-sales of homes, requiring developers to only sell completed properties. This measure is part of a proposed “new model” for real estate development by the central government, with details still being worked out.

    Future Land Sales

    The potential rule would be applicable solely to future land sales, excluding public housing, granting local governments the flexibility to implement it. The decision aims to reduce housing supply misalignments and prevent further price drops, particularly in smaller cities experiencing sharper downturns.

    The pre-sales system in China has led to excessive housing supply and developer debt, causing unfinished projects and mortgage boycotts. In 2021, about 90% of homes were pre-sold, decreasing to 74% in 2023, yet developers still heavily rely on advance payments for cash flow.

    Some analysts warn that the ban might worsen funding issues, slow land purchases, and negatively impact new construction and investment. The government has committed to fast-tracking supportive financing mechanisms for this new model, though specifics remain unclear.

    April data revealed an 8.7% year-on-year decline in new-home sales by top developers, stressing the need for reform amidst weak demand and U.S. tariffs. Over 30 cities have started trials for completed-home sales, with plans to promote it nationwide by 2025.

    What we’ve seen so far is a clear indication that authorities are turning the tide on the traditional method of selling residential property before it’s built—a system that, for years, fuelled an immense development boom but eventually contributed to deep cracks across the sector. The decision to shift how property is bought and sold is not a cosmetic adjustment. Instead, it is a recalibration that could fundamentally change how developers access funds, how cities manage growth, and how buyers assess value.

    Impact On Funding And Investments

    The proposal is not yet a top-down mandate. Instead, it provides enough room for local authorities to determine how and when to apply it within their jurisdictions. This flexibility allows governments to adjust implementation based on the local appetite for new homes and the financial health of developers in the area. It also limits immediate disruption, though expectations are that this model, once trialled in smaller or pilot cities, could extend more broadly.

    Wei’s analysis—that this tighter constraint may deepen funding stress and put off new land acquisition—is substantiated by the fact that a large proportion of projects still rely on the pre-sale mechanism as a vital means of liquidity. The concern is not whether firms will be challenged; rather, it is how many will have sufficient reserves or accessible capital to bridge the cash-flow gap once pre-sales are scaled back further or abolished at the acquisition stage.

    Let’s consider the broader impact. For one, the requirement to complete homes before sale draws developers into a more inventory-heavy model. Instead of collecting deposits during early phases of development, they’ll carry certain financial burdens longer while hoping future buyers materialise. This inevitably weeds out smaller or weaker players who lack the balance sheet to weather the delayed revenue.

    The move could provide more stability for buyers, given the worry of unfinished homes vanishing into ghost-town status has not disappeared in key provinces. Purchase demand, however, remains tepid, and the April figures point directly to this headwind. New-home sales dropping nearly 9% is not just a margin of error; it is consistent with a broader reluctance among households to reinvest, buy mid-project, or trust delivery terms. With that said, investor sentiment is no longer being driven purely by price discounts or incentives, but rather a deeper reflection on reliability and long-term value.

    This is where we must be specific in our timing. Over 30 municipalities are testing completed-home transactions, and the plan to expand that nationwide creates a timeline—most likely culminating around the end of next year—which will now hang over any forward-looking contract, investment, or leveraged position. Financing mechanisms being fast-tracked by the centre may offer temporary relief, but without clarity on rollout, assumptions on government backstops need to be critically examined.

    When funding channels tighten and land purchasing slows down simultaneously, developers pivot. That pivot often includes delaying new starts, adjusting pricing models, and offloading assets to maintain solvency—a familiar pattern from previous cycles. Therefore, we anticipate decreased volatility in construction inputs short-term, with a wider spread of risk in local debt instruments.

    What matters now is how deeply the policy filters through in the coming quarter and how participant behaviour adapts before that deadline. We should expect positioning to shift quickly if more cities join the test group. Particularly given how quickly property developers have adjusted launches and investment flows in the past once financing patterns visibly changed.

    Sentiment in equity-linked metrics and fixed income tied to land banks may see mild correction, particularly where assets under consideration are in regions likely to trial the complete-delivery model sooner. No one is pricing certainty yet; instead, we are watching for pattern shifts. Input costs, interest coverage, and land premiums are now paramount, not secondary.

    Create your live VT Markets account and start trading now.

    see more

    Back To Top
    Chatbots