Local authorities in one of China’s largest provinces are considering banning developers from selling apartments before they are completed, a reform that could send shockwaves through the debt-laden industry, Bloomberg reports.
So-called pre-sales are currently the largest funding source for developers in China. Revenues from the sales allow the companies to finance further land purchases. Developers have already had several funding channels restricted in recent months, from bond sales to borrowing from shadow banks.
After news emerged that Guangdong’s housing authority is considering banning pre-sales, shares of major developers plunged in Hong Kong on Monday, with Country Garden Holdings closing down 5.6% and China Evergrande Group finishing down 3.6%
The government is trying to prevent developers from taking on even more debt. The industry faces an enormous $23 billion maturity wall in the first three months of next year.