PROPERTY REVIEW: Reforms to the sector

China has taken its most significant step in years toward dismantling the property sector’s presale-dependent financing model, shifting more responsibility for funding projects from homebuyers to banks. Rules issued on August 28 require mortgages on presold homes to be released only after projects have been completed, while each development will have a lead bank overseeing project funds. The changes address one of the deepest sources of the housing downturn: buyers’ fear of paying for apartments that may never be delivered.

The overhaul has also extended the maximum mortgage term to 40 years from 30, giving households more scope to reduce monthly repayments. For developers, however, the shift is more consequential. Presale proceeds have historically provided an important source of construction funding, allowing builders to recycle buyers’ cash into new projects. Under the new system, development loans will be tied more closely to individual projects and placed under the supervision of a lead bank. That should make project completion safer but could disadvantage smaller developers with limited cash reserves, accelerating consolidation around financially stronger groups.

August market data underline why Beijing is prioritizing confidence rather than simply encouraging more borrowing. Average second-hand home prices across 100 cities fell 0.45% from July to RMB12,527 ($1,755) per square metre, with prices declining in 93 of the 100 cities surveyed. New-home prices rose 0.15%, but the increase was concentrated in higher-priced projects in cities including Shanghai, Hangzhou and Chengdu rather than reflecting a broad recovery. A Reuters poll published alongside the reforms has forecast property investment falling 20% in 2026 and sales by floor area declining 10%.

Vanke’s half-year results have reinforced the financing problem confronting developers. The company reported a RMB14.95 billion first-half net loss as revenue fell 33%, although operating cash flow returned to a modest positive RMB500 million. Its net gearing nevertheless climbed to 135.4%, illustrating why regulators are trying to separate viable projects from weakened corporate balance sheets.

The next test will be whether safer financing can persuade households to buy without another large demand stimulus. September’s traditional sales season will provide an early indication, but restoring confidence in housing as an asset—and not merely guaranteeing delivery—remains the harder task.