China's Fuzhou Tries Out Finished-Home Sales System as Presales Model Comes Under Fire
Ma Yifan
DATE:  Jul 21 2022
/ SOURCE:  Yicai
China's Fuzhou Tries Out Finished-Home Sales System as Presales Model Comes Under Fire China's Fuzhou Tries Out Finished-Home Sales System as Presales Model Comes Under Fire

(Yicai Global) July 21 -- Fuzhou in southeastern Fujian province is debuting a completed-house sales model after a recent uproar when buyers of properties under development refused to continue paying their mortgages as developers kept pushing back the handover dates. But experts say phasing out the presales model won’t be easy.

Fuzhou’s Yongtai county is auctioning off a plot of land on Aug. 5 for commercial and residential use with the proviso that only once the properties are completed can the developer apply to start selling them. The starting price for the 34,535 square-meter plot has been set at CNY40 million (USD5.9 million) and the premium is capped at 20 percent, according to local land auction data. It is the first time that Fuzhou attaches such a requirement to land auctions.

China’s pre-sales model was introduced 28 years ago at a time when there was a lack of properties on the market, Kuang Weida, director of the Center for Urban and Real Estate Research at Renmin University, told Yicai Global previously. Worried that prices would keep rising, buyers were willing to take the risk of purchasing the homes before they were finished.

However, in the current tight financing environment, developers are struggling to complete construction on schedule. Earlier this month, purchasers in around 150 housing projects across 20 provincial-level regions banded together to demand that developers start rebuilding and that the houses are delivered within a reasonable period of time otherwise they will stop repaying their bank loans.

At present, only the island province of Hainan, with a strong tourism industry, implements a completed home sales model across the province. Some big cities in the east of the country, such as Suzhou and Hangzhou, tried to introduce land sales for finished homes only but in the end they had to stop due to developers’ lack of interest.

Presales are an important way of financing real estate projects, Cui Guangcan, professor at Shanghai Normal University’s School of Finance and Business, said earlier. They cannot be done away with until a new financing model is introduced.

Should a finished-home sales system be implemented nationwide now, it will greatly reduce the amount of leverage in the real estate industry, triggering drastic adjustments and the outbreak of a large number of bad debts, Bai Wenxi, chief economist at US marketing company IP Global China, told Yicai Global.

However, supply and demand in the real estate sector has completely changed, and the flawed supervision of presales funds has caused many problems, so it is time to make changes to the presales model, Bai added.

China should learn from the presales systems used in other countries and require banks to issue mortgages to homebuyers only after the properties are handed over. This would be a compromise with a relatively small impact on the real estate sector, he added.

Editors: Dou Shicong, Kim Taylor
 

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Keywords:   Unfinished Houses,Fuzhou