Latest News:  
Beijing   Overcast/Shower    29 / 21 ℃  City Forecast

English>>China Business

Axing home presales will push developers into corner

By Ye Tan (Global Times)

09:57, August 20, 2012

Earlier this month, rumors emerged that the government was considering forbidding property developers from accepting presales orders of housing units that were still under construction. The Ministry of Housing and Urban-Rural Development, the nation's top housing regulator, quickly refuted these rumors, but not before they had sent the prices of listed developers' stocks tumbling.

It's no wonder the market was so quickly swayed by these rumors, since there have been several official calls to ban home presales in recent years due to frequent allegations that property developers were delaying deliveries or thrusting poor quality units on presales buyers.

Yet, with China's property industry floundering thanks to government-imposed curbs meant to cool the real estate market, scrapping presales orders would be yet another nail in the coffin for many of the country's cash-strapped developers. Perhaps more importantly, such a ban would likely push developers who could survive such a ban to find ways to raise their home prices in order to offset the loss of their presales revenues, a situation which would run counter to the government's efforts in recent years to rein in home prices.

The policies Beijing has been rolling out since 2010 to bring housing prices to more reasonable levels has led to a slump in home sales for the country's developers, many of which were forced to turn to trust financing for funding to pay off their existing debts.

According to figures from UBS Securities Co Ltd, Chinese property developers will have to repay a total of 80 billion yuan ($12.57 billion) worth of trust financing in the fourth quarter of this year, a record sum and a huge increase from the combined 17 billion yuan in trust money local developers had to pay back during the same period last year.

Unfortunately for developers though, China's banking regulators moved to prevent trust firms from rolling over their loans to finance real estate projects at the beginning of this year, driving many property companies to turn to presales as one of their few remaining sources of funding for new projects.

In 2010, 39.1 percent of the capital developers invested in new construction came from presales, according to a report on China's property sector by Richlink International Capital Co Ltd, and this figure has been steadily climbing since then.

Without access to presales funding, many developers could be expected to cut corners on their current projects or break their contracts with presales buyers. Some developers may even take steps to hoard homes in order to raise prices through artificially manipulating supply pressures.

Rather than simply doing away with presales orders, and pushing developers into even more dire financial straits, which may result in unintended consequences for the market, the government should instead increase oversight on these orders to ensure that property developers are living up to their agreements.

News we recommend:
Has the bear outstayed his welcome? Steel profits continue to suffer China has entered an era of low consumer prices
Firms should watch out for Internet threats China's property market to cool down: experts Why have people lost trust in data and indices?
A ruling in Europe gives cheer to China  Online retailers declare cut-throat price war Zones to boost DPRK trade


Leave your comment0 comments

  1. Name


Selections for you

  1. F-15 fighters break sound barrier

  2. Japan stuck in neighbors' anger

  3. China's beauty industry profits from a makeover

  4. Love is all around

  5. Cute baby bear

  6. Sexy bikini special forces

Most Popular


  1. Medicare row escalates with Romney's VP pick
  2. New UN envoy's appointment last ditch for Syria
  3. Stock markets remain a depressing drag
  4. ASEAN, China should maintain regional stability
  5. Be wary of West powers' attempt on Syria
  6. History proves Diaoyu Islands are China's territory
  7. Nation’s strength backs Diaoyu progress
  8. Who are tomorrow's consumers?
  9. Syrian neighbors different as crisis deepens
  10. Arms sales add fuel to regional security dilemma

What's happening in China

Usual suspects not on hot cities list

  1. Children join parents' petition for overdue wages
  2. Muslims celebrate end of Ramadan
  3. Three missing as leisure boat capsizes
  4. Mountain closed due to fire concerns
  5. Students for migrants during Qixi Festival

China Features

  1. Is China's low-cost era approaching its end?
  2. Chinese firms provided one-stop services in U.S.
  3. Don't store bread and biscuits together
  4. Eat ducks during Chushu (Stopping the heat)
  5. Special athletes at London 2012 Olympic Games

PD Online Data

  1. Spring Festival
  2. Chinese ethnic odyssey
  3. Yangge in Shaanxi
  4. Gaoqiao in Northern China
  5. The drum dance in Ansai