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China property

China’s proposal to ban property presales ‘unfair’, says state-owned developer

PUBLISHED : Monday, 22 October, 2018, 8:30am
UPDATED : Monday, 22 October, 2018, 9:25am

A ban on the practise of selling homes before completion could have dire consequences for China’s housing market, with the proposal - now being discussed by a number of municipalities - likely to tamp down supply and add more fuel to prices, according to the chairman of a state-owned developer.

Lin Zhaoyuan, chairman of state-owned Yuexiu Property, urged municipal officials to carefully assess the impact that the presale ban would have on the real estate industry.

“The requirement was not specified when we bought land,” Lin said during a media briefing in Guangzhou on Friday. “This is unfair to enterprises.”

The comments came after the Guangdong Real Estate Association solicited opinions from companies about the consequences of banning presales in September.

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

Presales, a mechanism copied from Hong Kong, has been a cornerstone of the high-leverage and rapid sales turnover strategy embraced by mainland developers.

The sales ban would push back the company’s assumptions about when it can expect to draw payments from property buyers, he said.

“When we bought the land, [it was stated] we could do presales,” Lin said. “If you say, after we bought the land, and you only let us sell when flats are completed, then it takes one to two more years [to see capital back].”

As a result, companies may then see their costs of capital inch higher, pushing some with high debt ratios over the edge.

“The capital chain may suddenly be broken if they cannot sell projects soon,” Lin said.

Chinese developers are known for their high debt ratios. For example, Country Garden, China’s largest developer by sales, had a debt to equity ratio of 2.8 times as of the end of June.

Lin also said the policy change would lead to a dwindling supply of new homes and higher prices.

“Say for Yuexiu, originally we could sell projects when they are 70 per cent complete,” Lin said. “If we can only sell projects two years later, then a lot of people will not be able to buy homes, leading to price rises.”

‘Fix our flats, or give us back our money’: buyers protest against Vanke build quality

Lin conceded that there were possible benefits from a ban on presales, including better supervision and improved quality standards.

“Completed homes have fewer problems related to expectation of quality when you can have a look before buying,” said Lin.

In a reminder of the risks of buying off-plan, scores of disgruntled homeowners gathered in front of China Vanke’s Beijing headquarters on Thursday chanted the slogan “rectify or refund”.

The homeowners, which bought at pre-sales in early 2017, were venting anger over what they claimed were quality problems when a development in suburban Daxing, Beijing was delivered last month.

China Vanke, which was a co-investor on the project, said the claims of quality problems were unfounded.

Homeowners paid up to 4.5 million yuan (US$650,113) to buy flats in layouts ranging from 43 to 90 square metres.

Lin said he believed there was a low probability that a ban on presales would be adopted because of “it would change the rules of the market”.

“The impacts are big,” Lin said, adding that the implementing the policy would be complex.

Yuexiu Property, which has a total land reserve of about 18.22 million square metres, is focused on growth in the greater bay area in southern China, Yangtze River Delta region in eastern China and central China.

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