China steps closer to banning home presales, sending a chill among domestic developers

Chinese property developers have been invited to give their input on a controversial proposal that would prohibit sales of flats before they are finished, potentially expanding discussion currently underway in Guangdong province. A broad prohibition of the sales practise could weigh negatively on shares of large property developers and remove a key source of funding to smaller developers, according to experts.

Zhang Peng, president of Modern Land, a Beijing-based developer, told the Post that he has been contacted by local authorities about the possibility of phasing out presale arrangements.

“After fully evaluating the risks, the option can be used in a few regions, just like other administrative curbs such as buyer eligibility restriction,” he said.

In September, a leaked document showed developers in Guangdong have received a consultation inquiry paper from the Guangdong Real Estate Association about the feasibility of cancelling presales.

Several other provinces are also holding talks about ending presales, including Hubei, Jiangsu and Sichuan.

Concerns that ending the practise would remove the biggest funding channel for the sector helped send property stocks sharply lower on September 24, the day after reports of the proposal were first circulated. The Hang Seng Mainland Properties Index declined as much as 4.5 per cent during the session, and Country Garden, China’s largest developer, fell as much as 7.1 per cent. Since then, the index has dropped a further 19.5 per cent, as of midday Tuesday.