China's pre-sale system that has propped up the real estate market is expected to be drastically scaled back. With developers' funding model of taking money from buyers before building dwellings cited as a factor that fueled the property crisis, the Chinese government has moved to overhaul the home sales system for the first time in more than 20 years. Analysts say the prolonged slump that continued even after the Evergrande crisis, the symbol of China's property woes, has ultimately led to a change in how developers finance their projects.
China's Ministry of Housing and Urban-Rural Development and others on the 28th of last month announced rules to improve the system for selling dwellings. Under the new rules, payments made by dwelling buyers will be kept in a separate escrow account. If a developer fails to deliver the dwellings by the promised time, buyers can terminate the contract and get their money back. Pre-sales will be allowed only after the building's frame has risen to the top floor.
◇ Pre-sales that drove the boom turned into a trap that worsened the crisis
China's pre-sale system was a key funding tool that drove the property boom. Developers sold unfinished dwellings just months after securing land, and buyers paid most of the price once construction had progressed substantially. Developers used the funds they raised this way to buy more land and rapidly expanded their businesses.
The trouble started as authorities moved to curb developers' excessive borrowing. When Beijing limited developer leverage in the early 2020s, funding channels were cut off, and a wave of dwellings that had been sold but not completed followed. Buyers faced the risk of not receiving homes and losing money they had already paid. As China's property market began to wobble in earnest, the pre-sale system itself emerged as a structural weak point.
The Central Bank already in 2005 recommended banning pre-sales of unfinished dwellings by developers. But the pre-sale system persisted for more than 20 years. According to Bloomberg, even by the end of 2025 the pre-sale ratio reached 75%. That is why the latest overhaul is seen as changing the funding structure of China's property development industry, not just a consumer protection measure.
◇ A brake on property development… concerns over lower local government revenue
Still, the scaling back of pre-sales could impose another burden on the real estate market. Because pre-sales are a key way for developers to secure early-stage capital, restricting them could make it harder to launch new projects. Zhang Xiaoxi, a researcher at the firm Gavekal Dragonomics, said, "If projects under existing rules are exhausted, new development could fall sharply in 2027."
Local governments could also shoulder the burden. Chinese local governments have long relied on selling land-use rights as a key source of funds, but land-sale revenue has plunged amid the property slump. Bloomberg said, "If new development and land demand weaken, local governments' fiscal conditions could also deteriorate," adding, "However, as new supply of dwellings declines, it could help stabilize home prices in the long run."
In a report, Zhang said, "Since authorities have pledged to reduce property risks, a decline in new dwelling starts and the difficulties that come with it may be considered a price worth paying."