Economic Observer reporter Tian Guobao

Within two days, 8 documents will be issued and 10 old regulations will be abolished. The policy adjustment covers the entire chain of the real estate market, including land acquisition, financing, construction, sales, mortgages, and delivery, from the project company system and the financing host bank system, to pre-sale conditions, fund supervision, and development loan terms.

The sale of existing houses has been officially pushed to the center stage. A clear signal is that the decision-making department is accelerating the construction of a new model for real estate development according to the established construction drawings.

On August 28th, the Ministry of Housing and Urban Rural Development, the Ministry of Natural Resources, and the State Administration of Financial Supervision and Administration jointly issued the "Notice on Improving the Sales System of Commercial Housing"; The People's Bank of China and the State Administration of Financial Supervision jointly issued the "Opinions on Reforming and Improving Real Estate Credit Management to Accelerate the Construction of a New Model for Real Estate Development"; On the same day, the State Administration of Financial Supervision and Administration of China issued five management measures for commodity housing development loans, personal housing loans, commercial real estate loans, urban renewal project loans, and real estate trust business.

The day before, the China Securities Regulatory Commission issued the "Opinions on Capital Market Support for Building a New Model of Real Estate Development", proposing to reform and improve the real estate financing system, and build a capital market service system that matches the new model of real estate development.

Over the past two decades, the capital circulation in the real estate industry has revolved around the pre-sale system, resulting in a high debt, high leverage, and high turnover model. In recent years, the market has continued to decline, sales receipts have slowed down, and risks such as misappropriation of pre-sale funds, project shutdowns, and delayed deliveries have been concentrated and exposed.

When answering questions from reporters regarding the "Notice on Improving the Sales System of Commercial Housing", the three departments stated that the recent bankruptcy liquidation of Evergrande Real Estate and the public verdict of the Xu Jiayin case are strong evidence of the exposed drawbacks of the "three highs" model in real estate development and operation. To change the "three highs" model, it is urgent to reform the sales system of commodity housing, strengthen the supervision of pre-sale funds, guide real estate development enterprises to reasonably determine the scale of development and operation based on their own strength, strengthen risk awareness, and promote the stable operation and high-quality development of the real estate industry.

The impact of real estate liquidity risk has long exceeded the industry itself. The concentrated occurrence of risks by real estate companies has weakened market confidence, and the decline in housing prices has affected residents' balance sheets, suppressing their willingness to consume; Upstream and downstream industries such as construction, building materials, home appliances, home furnishings, and finance have all been affected; By 2025, the revenue from the transfer of state-owned land use rights by local governments will be less than half of what it was in 2021.

A series of new policies have been intensively introduced in this context. Unlike in the past, this time the basic system of the real estate industry has been systematically rewritten. A senior executive of a state-owned real estate company told the Economic Observer that this policy is not a general market regulation, but a reconstruction of the industry's operating system.

Standardize pre-sales and encourage current sales

On the day of the release of the new policy on August 28th, the headquarters of a large real estate enterprise group convened a meeting with relevant department heads from various regions and cities, demanding a nationwide suspension of investment and a comprehensive consolidation of existing projects. After the headquarters meeting, the regional company evaluated the impact of the policy on sales and decided to suspend customer retention for projects that have not yet obtained pre-sale permits. Projects that have obtained certification will be given varying degrees of resource allocation based on factors such as turnover rate and completion milestones.

A residential project managed by Gao Huan, the sales manager of a certain region of the real estate company, has been attracting customers for several months. The original plan was to obtain certification in mid September and open for sale on National Day. But on August 31st, the reception center of the project was temporarily closed, some sales personnel were diverted to other projects, and several confirmed marketing activities were also cancelled.

The project is currently in the main construction stage, with some buildings reaching three or four floors, most of which have just reached positive or negative zero (the benchmark level of the main project is completed below the benchmark level, that is, reaching positive or negative zero). The new regulations propose that for pre-sale of commercial housing projects, individual buildings should complete the main structure topping out, and specific conditions will be determined by local authorities based on actual conditions. According to this requirement, the project can only apply for a pre-sale certificate after the main structure is capped.

The market has different understandings of the clause that 'specific conditions shall be determined by each region based on actual conditions'. According to a research report by Oriental Securities, the new regulations have not set the cap on the main structure as a mandatory requirement for national unity, and there is still some flexibility for local governments; Guosheng Securities, Kaiyuan Securities, and Morgan Stanley believe that capped evidence collection will be the bottom line.

Regardless of local regulations, the sales node has been clearly moved backwards. Under the old regulations, a project usually takes about six months from land acquisition to certification. The new regulations require the main structure to be capped as a pre-sale condition, and the time for obtaining evidence may be extended to about one year; Adopting current home sales may take up to two years.

Gao Huan is still waiting for the implementation rules to be issued by the city where the project is located. Although the new regulations do not prohibit pre-sales, the group needs to reassess the impact of policies on pre-sale projects, as well as whether buyers will still accept pre-sales, before deciding on the promotion plan and timing.

In her opinion, after the sales model shifts from pre-sales to current home sales, the influence of salespeople on transactions will weaken. In pre-sale situations, salespeople can facilitate transactions by depicting the future form of the project; When selling a house, the product and supporting facilities have already been presented, and the buyer's judgment depends more on the actual quality.

Since the market returned to normal, many new houses have had a low turnover rate during the pre-sale stage, and most of them are sold only after being converted into existing houses, in fact, they are already sold as existing houses. Under the new policy, pre-sale projects and existing housing projects compete on the same stage. Gao Huan believes that homebuyers will be more inclined to purchase existing housing, and the pre-sale system will be naturally eliminated.

A real estate researcher believes that in the past, in the pre-sale of commercial housing, after the pre-sale contract and mortgage contract were signed, the risks of project construction and enterprise operation were largely transferred to the buyers. Even if the project is suspended, the borrower still needs to fulfill their repayment obligations. Promoting the sale of existing houses and strengthening the supervision of pre-sale funds can reduce the delivery risk caused by "paying first, receiving later".

Capital Chain Reset

The most direct impact on real estate companies is the delay in payment collection due to the shift of sales nodes. The executives of the state-owned real estate companies mentioned above said that under the old regulations, it usually takes about six months for projects in first and second tier cities to start receiving payments from land acquisition. After the main structure is capped and mortgage loans are issued, the cash flow gradually reaches its peak; After meeting the construction needs, the surplus funds in some project supervision accounts can be appropriately withdrawn.

Under the new policy, it takes at least one year for projects to receive payment from land acquisition, while the payment cycle for existing housing sales projects is over two years. The supervision of pre-sale funds has also been further tightened. Buyers' down payments, personal housing loans, etc. must be fully deposited into the supervision account. The supervision can only be lifted after the completion and acceptance of the project, and the delivery conditions of supporting facilities such as water, electricity, and heat are met.

The executives of the above-mentioned state-owned real estate enterprises expect that after the implementation of the new policy, the repayment time of real estate enterprises will be delayed by at least one year. During the construction period of the project, the purchase price is no longer the main source of construction funds, and the financial pressure in the early stage of development increases accordingly.

The new policy no longer distinguishes between "key supervision quotas" and "non key supervision quotas", and all purchase funds will be supervised until the completion and filing of the project. According to the judgment of Open Source Securities, the pre-sale funds for new projects will be closer to fully closed management.

The executives of the above-mentioned state-owned real estate enterprises said that since 2022, due to the need to ensure delivery, the pre-sale funds of private enterprises and some state-owned and mixed ownership real estate enterprises with weaker credit have approached full process closed management; A few state-owned enterprise projects in some cities can still moderately extract surplus funds. Therefore, he judged that before and after the new policy, there were limited changes in the financial supervision of private and mixed ownership real estate enterprises, and the cash flow of large central enterprises and top local state-owned enterprises may be more affected.

After the sales proceeds are locked in, development loans are also strictly restricted. In the past, projects were sold during the construction period, and the proceeds could be used to repay development loans and pay engineering fees. The group headquarters could also allocate funds between different projects. The new rules require that development loans cannot be transferred across projects, used to pay land transfer fees and related taxes, project dividends, or other investments; Project revenue shall not be collected by the group, parent company, or other affiliated enterprises, and shareholders shall not withdraw capital. The executives of the aforementioned state-owned real estate companies believe that the funding pool of the group headquarters will gradually collapse as a result.

As a result, the role of development loans has also changed. In the past, development loans were mainly used to connect pre financing and pre-sale payments, with limited impact on project construction.

According to the new regulations, the development loan term for pre-sale projects should generally not exceed 3 years, with a maximum of 5 years; The principle for current home sales projects is not to exceed 5 years, with a maximum of 7 years; The first repayment of principal is scheduled after the completion and filing of the project. The debt pressure during project development has decreased, and development loans bear more construction funds. The project's dependence on sales receipts from development and construction to completion filing has decreased.

The document from the China Securities Regulatory Commission proposes to reform the financing methods for real estate development and promote a shift from relying on subject credit to project based financing. The new regulations also separately adjust trust financing, equity financing, bond financing, and capital market financing. The executives of the above-mentioned state-owned real estate enterprises believe that the financing channels available to real estate enterprises have increased, but there are more restrictive clauses and higher entry barriers for various types of financing.

The role of financial institutions in real estate development is also facing a reset. In the past, they relied on the credit endorsement of the main body for group credit, and in the future, they will shift towards individual projects. The host bank system requires banks to upgrade from simple lenders to closed managers of project funds. In the past, developers were able to transfer funds between different banks and projects, to the extent that even "ten pots and seven lids" could operate at their maximum. Now, the host bank is responsible for the full cycle of project fund supervision, ensuring that funds are used for their intended purposes. The extension of loan terms is aimed at matching the project construction cycle, but it also means that bank funds will accumulate longer on the project, which puts higher demands on the bank's asset management and risk pricing capabilities.

Shrinking Investment Radius

After the new policy was introduced, the real estate company where Gao Huan works will generally suspend external investment. She explained that suspending investment does not mean no longer acquiring land, but rather the group needs to rearrange funds according to a new payment model and establish a full cycle cash flow management system on a project by project basis, aligning with the requirements of project company system, host bank system, and closed fund management.

The change in payment collection mode has led to a longer investment return cycle for real estate companies. In high turnover years, a single fund can be invested twice or even three times within a year; After 2022, a small number of real estate companies will still be able to recoup some of their investments within six months to a year; Under the new policy, it takes two to three years to recover a sum of funds invested.

Gao Huan said that according to the original plan of the group, several projects in its region would recoup some of their investments within the year. After the new policy, this plan has been postponed to next year or the year after. If the sales receipts within the region do not meet expectations, the next investment plan will also be severely affected.

In her opinion, a reduction or delay in payments will result in a decrease in disposable funds for real estate companies, and the investment, construction, and completion plans made at the beginning of the year will have to be overturned and restarted. For example, our investment plan for this year was originally 50 billion yuan, but we can only receive a repayment of 20 billion yuan and have to reserve 5 billion yuan for emergency purposes, so we can only invest a maximum of 15 billion yuan

The executives of the state-owned real estate enterprises mentioned above said that after the new policy is introduced, their group will further shrink their investment scope, and in principle, they will no longer enter third - and fourth tier cities. Some districts and counties with better markets in the southeast coastal areas will also be cut off. Future investments will focus on no more than 10 core cities and primarily seek opportunities in the core areas of these cities.

He stated that since 2023, most of the projects invested by his group have been in a loss making state due to the market downturn. The gross profit margin calculated during land acquisition can reach 30%, but after various discounts are calculated at the opening, only about 20% remains; Liquidation within one year can maintain a certain profit, liquidation within two years can break even, and failure to liquidate within two years will result in losses.

In his opinion, in the past, when investing in land acquisition, the main judgment was the market situation at the opening six months later, and there were still many mistakes; Under the new policy, it is necessary to predict the market situation one or even two years in the future. In the current uncertain market, we can only rely on luck.

Previously, we only emphasized the core areas of core cities, but in the future, this selection logic is far from sufficient, and the granularity of investment models needs to be more refined. He said that whether it is pre-sale projects or current sales projects, the new policy has put forward higher requirements for the investment ability of real estate companies. Cash flow constraints, market uncertainty, and increased investment difficulty will further limit the investment and new construction scale of real estate companies.

The head of a real estate company's urban company told the Economic Observer that after the new policy, the investment amount in their city will be reduced by about half, and several projects that were originally planned to be invested in the second half of the year are no longer "determined to win". The next stage of the group's focus is to quickly digest existing projects.

He expects that in the coming period, the supply of new houses will decrease, and the situation of oversupply in the new house market will improve. But currently, top developers still have a considerable amount of inventory, and clearing inventory in the short term may cause local market stampede, especially for existing projects in non core areas that urgently need to be quickly realized.

Refactoring Real Estate

The formation of China's real estate system began with the transition of urban housing from welfare distribution to commercialization. With the growth of urban population, housing supply became increasingly tight, and in the early 1990s, commercial housing began to emerge. In 1994, the "Urban Real Estate Management Law" established the pre-sale system for commercial housing. After the "Housing Reform" launched the monetization reform of housing allocation in 1998, the pre-sale system for commercial housing was continued through regulations such as the "Regulations on the Management of Urban Real Estate Development and Operation", and has been used in the sale of commercial housing to this day.

The above-mentioned real estate researchers have participated in the formulation of housing reform policies. He told the Economic Observer that at that time, there was a shortage of urban housing and insufficient development funds for state-owned enterprises. Therefore, he borrowed from Hong Kong's practice of "selling pre-sale properties" to introduce a pre-sale system for commercial housing. He believes that this system should have been adjusted in a timely manner according to changes in market conditions, but due to various reasons, it has continued for about 30 years.

According to the housing reform design of that year, the housing supply "walked on two legs", one was an affordable housing system with social security properties for middle and low-income families, and the other was a commodity housing supply system for high-income families. However, the development of the affordable housing system has always lagged behind that of the commercial housing system.

The real estate researchers mentioned above believe that the development of the affordable housing system lags behind, and the housing needs of low-income groups cannot be met, so they can only purchase commercial housing. Therefore, they need to empty their "six wallets". This is the root cause of the high proportion of real estate and housing loans in household assets and liabilities.

Under the pre-sale system, homebuyers pay the down payment and mortgage loan to the developer before the project is completed; The pre-sale funds generally lack effective supervision, and the situation of misappropriation is quite serious; Once the project is abandoned, buyers will not be able to obtain the house and will have to repay the mortgage loan on a monthly basis.

Previously, experts from the housing and construction departments criticized the pre-sale system and mortgage arrangements. In the past, in real estate sales, developers sold their houses for cash, and banks guaranteed income in case of drought or flood, with all risks concentrated on the buyers.

One of the critics once told the Economic Observer that banks and developers are both legal entities with sufficient resources to formulate loan and pre-sale rules to avoid risks; Homebuyers are individuals who lack the ability to identify unfavorable terms and have no bargaining chips to compete with banks and developers, ultimately becoming the biggest victim of this round of real estate accidents.

The core of the new policy is to redistribute the risks and responsibilities of real estate transactions and maximize the protection of homebuyers. The real estate researchers mentioned above believe that when banks earn interest on loans, they have to bear the risk of not being able to recover the loans; If the developer collects the purchase price in advance, they have an obligation to build and deliver the house.

After the implementation of the new policy, pre-sale funds were locked in the project supervision account, and the fund scheduling function of the group headquarters was significantly weakened. In the future, it will be closer to the investment management platform, and the status of the project company will rise. The executives of the above-mentioned state-owned real estate companies believe that in the past, real estate companies focused on turnover speed and financing ability, while in the future, they will compete on the product strength, cost control, and investment ability of individual projects.

Since 2021, due to the impact of real estate liquidity risks, a large number of builders and suppliers have faced survival crises due to the inability to recover project payments and goods. Under the new policy, there are dual guarantees of development loans and pre-sale funds for engineering and payment; However, the short-term contraction of investment by real estate companies also means that orders from builders and suppliers may decrease.

The real estate market in recent years

In 1988, the State Council issued the Implementation Plan for the Reform of the Housing System in Urban Areas Nationwide, proposing to change the distribution of physical housing benefits to monetary wage distribution and promote the commercialization of housing. The constitutional amendment passed in the same year stipulated that land use rights can be transferred in accordance with legal provisions.

In 1990, the State Council issued the "Interim Regulations on the Transfer and Transfer of Urban State owned Land Use Rights", establishing a system of paid and fixed-term transfer of land use rights. Urban land entered the market, and commercial housing development obtained land sources from it.

In 1994, the State Council issued the Decision on Deepening the Reform of Urban Housing System, proposing the establishment of an affordable housing system with social security characteristics for low - and middle-income families, as well as a commodity housing supply system for high-income families. In the same year, the Standing Committee of the National People's Congress passed the Urban Real Estate Management Law, establishing a pre-sale system for commercial housing.

In 1998, the State Council issued a notice on further deepening the reform of the urban housing system and accelerating housing construction, deciding to stop the physical distribution of housing and gradually implement the monetization of housing distribution. In the same year, the People's Bank of China issued the "Measures for the Administration of Personal Housing Loans", establishing the personal housing loan system.

In 2002, the former Ministry of Land and Resources issued the "Regulations on Tendering, Auction, Listing and Transfer of State owned Land Use Rights"; Two years later, the bidding and listing system for commercial construction land will be fully implemented.

In 2003, the State Council issued a notice on promoting the sustained and healthy development of the real estate market, proposing that the real estate industry had become a pillar industry of the national economy. In June of the same year, the People's Bank of China issued a notice on further strengthening the management of real estate credit business, providing a basis for real estate enterprises to apply for development loans and personal mortgage loans.

From 2005 to 2016, real estate regulation experienced multiple rounds of tightening and relaxation, with housing credit and purchase restrictions being the main tools, and basic systems such as pre-sales, financing, and repayment remaining relatively unchanged.

The 2016 Central Economic Work Conference first proposed that 'houses are for living in, not for speculation'.

In August 2020, the Ministry of Housing and Urban Rural Development and the People's Bank of China held a symposium on key real estate enterprises in Beijing, jointly forming rules for fund monitoring and financing management of key real estate enterprises with relevant departments. This set of rules is summarized by the market as the "three red lines".

In December 2021, the Central Economic Work Conference proposed exploring new development models.

In January 2022, the Ministry of Housing and Urban Rural Development, the People's Bank of China, and the former China Banking and Insurance Regulatory Commission jointly issued the "Opinions on Regulating the Supervision of Pre sale Funds for Commercial Housing", clarifying the requirements for the supervision limit of pre-sale funds and the allocation of key supervision funds according to project milestones.

In 2023, both the Central Financial Work Conference and the Central Economic Work Conference proposed to accelerate the construction of a new model for real estate development.

In July 2024, the Decision of the Third Plenum of the 20th Central Committee once again proposed to accelerate the construction of a new model for real estate development, reform the financing methods for real estate development and the pre-sale system for commercial housing.

The 2025 government work report proposes to establish relevant basic systems in an orderly manner and accelerate the construction of a new model for real estate development.

In March 2026, the "15th Five Year Plan" outline approved by the National People's Congress proposed to vigorously and orderly promote the sale of existing houses, implement the real estate development project company system and the financing host bank system. The government work report further proposes to deepen the construction of basic systems and supporting policies for the new model of real estate development.

In August 2026, the real estate industry will change its expansion model relying on pre-sale payments and group fund allocation.

(Author Tian Guobao)