Developers in Foshan, a city in southern China’s Guangdong province, can now start selling their new homes before fully repaying their development mortgages to banks, reports Caixin. The new policy is a government initiative to address sales challenges encountered by government-acquired housing projects from troubled developers, according to a banker, speaking anonymously. As certain real estate firms have defaulted on development loans or become insolvent, banks refuse to allow mortgage releases which result in unsold properties.
Normally, developers must repay their development loans on projects under construction before the lenders remove the property as a security on the loans, thus allowing developers to start selling, Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, told Caixin.
The model’s flaw lies in its potential to strangle developers’ capital chains due to slow payments and an inability to repay, ultimately stalling sales and exacerbating the financial strain, Li said.