Summary of Key Points
On August 28th, multiple ministries and commissions, including the Ministry of Housing and Urban-Rural Development and the People's Bank of China, jointly issued eight national real estate policies that established the foundational framework for a "new model of real estate development." The core aspects of these policies are the requirement for completed housing before sale (strengthened conditions for pre-sale) and closed management of funds (full supervision of housing payments, prohibiting the transfer of funds between projects). This approach completely ends the developers' practice of using funds from one project to support another, which has a significant impact on the entire industry chain. Different stakeholders—scholars, real estate executives, suppliers, frontline professionals in the industry, and homebuyers—have varying opinions on these changes: some see them as negative, while others see new business opportunities, some worry about the risks they pose, and still others hope that they will help rebuild trust in the industry.
Detailed Analysis of the Policies
1. What exactly does the new model change?
In simple terms, the two most critical changes are:
- Stricter pre-sale regulations: Previously, developers could start selling pre-sale homes even before the building was completed to a certain height. Now, they must wait until the main structure of the building is finished before they can start pre-selling. Even then, the money is not immediately released to the developers; it can only be released once the house meets all the delivery requirements (such as completion and registration).
- Funds cannot be transferred: All housing payments (down payments and mortgages) must be placed in a supervised account and can only be used for the construction of the specific project; they cannot be used to support other projects. For example, if a developer has projects A and B, the money from the successful project A cannot be used to fund the unfinished project B.
These changes mean that developers will have to hold onto their funds for a longer period, typically 10-20 months longer, which will increase their financial costs (such as loan interest). The traditional model of "acquiring land → starting pre-sales → using pre-sale proceeds to build new houses → acquiring more land" is no longer feasible.
2. Scholars: A necessary path to rebuild industry trust
Professor Liu Hongyu from Tsinghua University argues that while the new policy appears to change the sales rules, it actually represents a major restructuring of the entire industry's framework:
- Challenges: Real estate companies will need to use more of their own funds to acquire land, as the funds are held for a longer time. This could increase market risks (e.g., if housing prices fall after completion) and raise financing costs (banks may charge higher interest rates due to perceived higher project risks).
- Why is this change necessary? The ultimate goal is to rebuild trust in the industry. There have been too many cases of unfinished or substandard pre-sale homes, which has eroded public confidence in real estate companies. Only by selling completed or nearly completed homes can buyers feel confident, and the industry can develop sustainably. After all, houses ultimately need to be sold, and trust is the foundation for a healthy market.
3. Enterprises and suppliers: Some face financial challenges, others see opportunities
- Divergent views among real estate executives: Luo Zhenyu, former president of Cede Group in China, believes that for "good projects," these changes are not a problem; they can obtain separate loans and have better control over their finances, potentially reducing interest costs. However, for large companies, it becomes more difficult to manage their funds, as they cannot allocate them across projects. Even if they have available funds, they may need to borrow externally to cover interest expenses.
- Suppliers: Both risks and opportunities: Many suppliers are concerned about the longer funding cycles, which slow down their cash flow. However, some see opportunities in using technologies like AI and BIM (Building Information Modeling) to predict project costs and revenues from the design phase, helping developers better manage their finances.
4. Frontline professionals and homebuyers: Changes in roles and attitudes
- Frontline professionals: They need to adapt their approaches. In the past, selling pre-sale homes relied on attractive marketing and conceptual presentations; now, they need to focus on the actual condition of the buildings and available amenities. Roles in marketing and land acquisition will likely change—those in land acquisition will need to be more cautious due to the longer funding periods. Some real estate companies may shift from acquiring land to focusing on construction and project management, creating new job opportunities. Overall, the number of jobs in the industry may decrease, and professionals will need to adapt proactively.
- Homebuyers: The new policy provides more peace of mind, as there is less risk of unfinished projects. The quality of homes, whether sold by private or state-owned companies, is more important. However, homebuyers have concerns: will higher costs passed on to them by developers, and will there be a short-term reduction in new housing supply in major cities due to the longer funding cycles? In the long run, as long as the quality of the homes is good, both types of companies will be accepted by the market.
In one sentence
The new real estate model is like "a painful but necessary treatment" for the industry. It will cause short-term difficulties for real estate companies but will help rebuild trust and make buyers more confident. It will also drive the industry towards a healthier, quality-focused direction. The ultimate success of these changes will depend on how well they are implemented and how well the market adapts to them.