In the first half of this year, China witnessed a significant 21% drop in new home sales by floor area compared to the same period in 2023, indicating a cooling in what was once a red-hot market.
This downturn is particularly pronounced in pre-sales, which have declined by roughly 30%. In contrast, post-completion sales have increased by about 20%.
Post-completion transactions now account for over 20% of all new property sales by value, marking the highest level since 2006 from January to July.
This shift is reshaping the landscape of China’s real estate sector, traditionally reliant on pre-sales to fund further development.
These upfront sales allowed buyers to secure homes at a discount, even as the market expanded and prices increased.
However, the recent downturn has precipitated a severe liquidity crisis among developers, halting construction on many pre-sold properties.
This has led to widespread delays, prompting protests and reluctance among buyers to fulfill mortgage commitments.
In response, real estate agents are focusing their efforts on promoting completed properties. Their aim is to reassure buyers who are anxious about delays and unfinished homes.
The Chinese Communist Party and government, aware of the potential for significant public discontent, have proposed changes to stabilize the market.
At their third plenary session in July, officials unveiled plans to revise pre-sale regulations and actively promote post-completion sales.
Local governments are aligning with this strategy by offering developers tax incentives and increasing bank credit lines, contingent on the sale of completed units.
Moreover, policies are being adjusted to favor local banks when buyers of completed properties apply for mortgages.
Guangzhou’s Public Housing Policy Shift
In Guangzhou, a new policy announced in August transitions all public housing sales to post-completion. This move aims to boost consumer confidence.
According to Chen Wenjing from the China Index Academy, this adjustment in sales strategy is expected to become more common, potentially setting a new norm across China’s cities.
Although these changes aim to mitigate risks associated with move-in delays, they also enhance buyer security. However, developers will face extended periods before they can recover their investments.
Construction costs could rise between 20% and 30% compared to pre-sales. Yusuke Miura from the NLI Research Institute observes, “The velocity of money will decrease, making it harder for real estate companies to operate as aggressively as before.”
Despite efforts to stabilize the market, home prices in 66 of China’s 70 major cities continued to decline in July. This marks the extension of a 14-month streak of price drops.
This trend underscores the ongoing challenges faced by developers in securing funding for projects amid a broader economic slowdown.
This downturn in China’s housing market reveals deeper structural issues within the economy. It highlights the delicate balance between maintaining growth and managing consumer expectations.
As the landscape evolves, the implications for both the real estate sector and the broader economy are profound. This suggests a cautious path forward for developers and policymakers alike.
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