China Property Stocks Fall on New Mortgage Rules Curbing Pre-Sale Funding

Shares of major Chinese property developers fell sharply on Monday following the announcement of new housing regulations that threaten to disrupt a key source of funding for the industry. The new measures target the long-standing practice of using pre-sale proceeds to finance construction, raising investor concerns about developers' liquidity and cash-conversion cycles.

New Rules Target Pre-Sale Model

The People's Bank of China and the National Financial Regulatory Administration jointly issued the new rules, which stipulate that mortgages for new homes can only be issued after a project is completed. The measures are part of Beijing's broader effort to mitigate delivery risks and restore confidence in a sector that has been under severe pressure since a major downturn began in 2021.

For decades, Chinese developers have relied heavily on selling apartments before they are built—a model known as pre-sales. The proceeds from buyer deposits and mortgage pre-approvals have been a critical source of funding for construction and other working capital needs. The new policy effectively delays this crucial cash inflow.

To help support homebuyers, the regulations also extend the maximum term for personal housing loans to 40 years from the previous limit of 30 years, a move that could lower borrowers' monthly repayment obligations.

Stocks Tumble on Funding Concerns

The market reacted swiftly to the potential liquidity squeeze, with shares of several large, state-backed developers recording significant losses. The immediate concern is that the new rules will lengthen developers' cash-conversion cycles and strain their finances during a difficult transition period.

Ad

Key decliners on Monday included:

• China Jinmao: -14.7%
• Greentown China: -12.8%
• China Resources Land: -7.7%
• China Overseas Land & Investment: -6.4%

A Difficult Transition Ahead

The policy highlights a fundamental tension in China's property market reforms: measures designed to create a more sustainable and safer market in the long run are creating immediate financial headwinds for developers.

While the affected companies are large and state-backed, which typically provides better access to financing, their scale makes them heavily exposed to the shift away from the pre-sale model. The market's reaction suggests that even these industry giants are not immune to the policy-driven changes reshaping the sector.