China tightens property rules: What it means for buyers, developers

China has introduced stricter regulations on the sale of properties before completion, aiming to protect buyers and reduce developers' reliance on pre-sale financing. As of July, only 17 out of 70 monitored cities saw increases in new home prices, indicating a continued slowdown in the real estate market. The changes, effective from Friday, require local governments to prioritize the sale of completed homes and enhance buyer protections for those purchasing under-construction units. Under the new policies, housing loans will only be available once residential projects are fully completed. This move is intended to prevent developers from using pre-sale funds to finance ongoing construction. Local authorities are also being urged to promote the sale of completed apartments, shifting away from the traditional model of selling homes before they are built. Additional safeguards have been introduced for buyers who opt to purchase under-construction homes, addressing years of issues involving project delays and unfinished developments. The maximum term for personal housing loans has been extended from 30 to 40 years, which is expected to lower monthly payments and ease the financial strain on homebuyers. According to Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, this adjustment aims to alleviate the debt burden on homeowners. However, despite these benefits, concerns remain regarding overall housing demand, property prices, employment stability, and household confidence. For developers, the new lending rules pose a significant challenge. Traditionally, they have depended on pre-sales to secure early cash flow, which is crucial for funding construction and operational costs. With the restriction on issuing mortgages until completion, developers will need to find alternative sources of capital. Nomura's research report highlights that presales still account for 68% of new-home sales by floor space in 2025, underscoring the magnitude of this regulatory shift. Developers with weaker financial positions may face increased pressure, potentially leading to further consolidation within the industry. The policy changes have had an immediate impact on the stock markets. Chinese property shares dropped sharply following the announcement, with the CSI300 Real Estate Index declining by 4.6% in afternoon trading. A gauge of Hong Kong-listed Chinese developers also fell by 6.5%, reflecting investor concerns over the potential effects on developers' cash flows. These market reactions highlight the broader implications of the new rules, especially as the property market continues to struggle following the crackdown on excessive borrowing and speculation in 2020. The measures are part of a larger effort to stabilize the property sector, which has been in a prolonged decline. Developer defaults and unfinished projects have contributed to reduced household confidence and slowed domestic consumption. By focusing on completed homes and offering longer mortgage terms, the government hopes to restore trust among buyers while ensuring developers maintain sufficient liquidity to continue operations. The long-term success of these reforms will depend on their ability to address underlying economic challenges and rebuild consumer confidence in the housing market.