China Ends Presale Mortgage Model, Boosting State Developers and Squeezing Private Firms

China’s central bank and top financial regulator have introduced sweeping reforms that end the long-standing practice of disbursing homebuyer mortgages before properties are completed. The new rules, announced on August 28, 2026, represent a fundamental shift in the real estate sector's financing model, creating a clear divide between potential winners and losers.

Details of the New Policy

The People’s Bank of China and the National Financial Regulatory Administration jointly issued the new credit regulations, which effectively dismantle the "build with buyer money" model that fueled the country's property boom. The key changes include:

• Post-Completion Mortgages: Banks can now only disburse mortgage loans after a project is fully completed and registered, ensuring buyers receive their homes before repayments begin.
• Extended Loan Terms: The maximum mortgage term for homebuyers has been extended from 30 to 40 years.
• Lead-Bank System: Each development project will have a single designated bank to manage all funds—including development loans and sales proceeds—in a closed-loop system.

This structural change forces developers to secure their own financing for the entire construction cycle, a significant challenge in a market already facing headwinds.

Winners: State-Backed Firms and Major Banks

The new framework is designed to favor well-capitalized, state-owned enterprises (SOEs) that can absorb longer funding periods. These firms typically have stronger balance sheets and access to cheaper, more reliable funding channels than their private counterparts.

State-backed developers like China Resources Land (1109.HK) and China Overseas (0688.HK) are positioned to gain market share as weaker private rivals struggle. Major financial institutions, such as China Merchants Bank (3968.HK), are also set to benefit from the lead-bank system, which creates stable fee income and captures the entire cash-flow cycle of a project.

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Losers: Leveraged Private Developers

Private property developers that have historically relied on presale cash flows to fund construction face an existential threat. The new rules create a severe liquidity squeeze, forcing them to find alternative, and likely more expensive, financing to bridge the gap until project completion.

This adds another layer of pressure on companies already in distress, including firms like Country Garden (2007.HK) and Sunac China (1918.HK), which is already undergoing debt restructuring. The policy compounds cyclical pain from a weak market, where national home sales fell 8.9% year-over-year by value in July and new construction starts plunged 28%, according to a recent Morgan Stanley report.

Market Outlook

While the reform addresses the critical issue of project completion risk—a major source of public discontent—it does not solve the property sector's underlying demand problem. Analysts note that national home prices continue to fall and purchase intentions remain weak.

Extending mortgage terms may improve affordability at the margins, but the policy's primary effect will be to accelerate consolidation within the industry. The long-term challenge for the entire sector remains reviving homebuyer confidence in a declining market.