Summary in Plain Language
Recently, the real estate market has seen a significant change that affects everyone: the sale of completed houses (i.e., “off-the-plan” properties) is no longer just a pilot program in a few small areas; it has officially become a requirement for core land supply in first- and second-tier cities. Following the national real estate policy announcement on August 28th, cities such as Quanzhou, Xiamen, and Lishui have already implemented rules that stipulate that houses can only be sold after they are fully constructed and pass inspection. Including previous explorations, a total of 39 cities across the country have introduced policies regarding the sale of completed houses. This policy has not been implemented uniformly; it currently covers less than 20% of newly allocated land, with priority given to high-quality plots in core areas. In the short term, it will not disrupt the overall supply and demand in the real estate market. However, it represents a complete shift from the previous practice of selling unfinished properties over the past 20 years. In the future, homebuyers no longer have to risk investing in unfinished projects, and the entire logic of making money in the real estate industry will need to be redefined.
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Detailed Explanation
1. The current requirement for completed houses is not a “conceptual” version; it comes with triple safeguards against unfinished projects
Many people may have heard of so-called “quasi-completed houses” or houses sold before the exterior is finished. The standard being implemented now is the “ultimate version”: houses cannot be sold until the entire project is completed and the completion inspection and registration are finalized. This means that when you pay for a house, not only is the house 100% finished, but the neighborhood’s landscaping, garages, and supporting shops are also in place, and the quality of the house and the legality of its ownership have been officially verified. There is no room for discrepancies.
Moreover, the sale of completed houses is not implemented in isolation; it is tied to two additional systems:
- The “Project Company System” requires that all funds for the project must be used for that project only. It is illegal for the parent company’s owner to withdraw funds for other projects or to distribute profits in advance, fundamentally preventing the possibility of companies absconding with money.
- The “Lead Bank System” involves banks monitoring all project funds, with development loans and sales proceeds placed in dedicated accounts and disbursed according to the progress of the project. This adds an extra layer of financial security, virtually eliminating the risk of unfinished projects.
2. The implementation is very gradual and not intended to be widespread in the short term
There is no need to worry that all new properties in your neighborhood will suddenly become completed houses and cause prices to rise. The current approach is a “small-step, trial-and-error” strategy. Data shows that out of the 18 new land plots listed nationwide after the August 28th policy, only 3 require the sale of completed houses, accounting for 16.7%, and these are all located in core, high-quality areas. For example, the plots in Xiamen are luxury properties in low-density areas with starting prices of nearly 60,000 RMB per square meter, while those in Quanzhou are in the city’s core business district. These are not areas with high demand for affordable housing.
The reason for the gradual implementation is to avoid a situation where all projects must be completed before they can be sold, which could lead to a delay in developers’ cash flows and a disruption in new housing supply, potentially driving up prices. With this approach, only a small number of core plots are being targeted for the pilot program, so in the short term, it will only affect the supply in a few popular areas, with no significant impact on the overall market.
3. The “high-leverage era” for real estate companies is over
The sale of completed houses effectively ends the “fast turnover” strategy that real estate companies have used for 20 years. In the past, developers could sell houses after building just 3-5 floors, using the buyers’ down payments and loans to fund the rest of the construction. This allowed them to leverage a small amount of capital to fund large projects, often recouping their investment in less than a year with a net profit of around 6%. With the new requirement, developers must finance the completion of the house and go through all inspection processes before they can sell it. This adds 1-2 years to the capital cycle, significantly reducing profits. For projects of the same scale, the net profit would drop to around 2.4%, less than half of the previous rate. Small and medium-sized companies that relied on high leverage to acquire land and gamble on market trends will not be able to withstand this pressure. In the future, only large, financially strong companies will be able to acquire land, and they will be much more cautious, focusing on high-quality plots in core areas. This will lead to a greater differentiation in the land market, with few investors interested in land in third- and fourth-tier cities.
4. Homebuyers no longer have to rely on the uncertainty of off-the-plan properties, but there are two new considerations
For homebuyers, the benefits of completed houses outweigh the drawbacks. The most immediate advantage is the elimination of the risk of unfinished projects, as they can see the actual condition of the house, measure the area, and inspect the quality of the walls at the time of purchase. The neighborhood’s facilities are also fully developed, avoiding situations where promised public schools turn out to be private ones.
However, there are two new trends to be aware of:
- The supply of new properties in core areas may decrease temporarily, as the sale of completed houses starts about a year later than off-the-plan properties. Those looking to buy in popular areas may have to wait a bit longer, and the range of choices may be limited.
- Local governments are likely to lower land prices to encourage developers to participate, as they need to make some profit. Therefore, there is no need to worry about developers passing on increased costs to buyers. The prices of completed houses in core areas are likely to remain stable, with no significant increases. For a long time, the market will operate with both off-the-plan and completed houses, and the proportion of completed houses will gradually increase, eventually replacing off-the-plan properties.