There's at Least One Chinese City Getting Busy Banning Pre-Sales

(Bloomberg) -- Guangdong sent ripples of fear through China’s property developers last month after reports authorities there are considering putting an end to the practice of selling apartments before they’re finished. One city in the province has taken things a step further -- actually banning pre-sales.

All 11 land plots sold, or scheduled for auction, in Zhongshan since mid-September were subject to a pre-sales ban, according to buying-requirement clauses on the website of the city’s land authority. Pre-sales are one of developers’ biggest and most-important financing channels, allowing companies to get money in the door quickly that they can then use to fund further land purchases.

“Zhongshan may be a trial city of the change,” said Xie Zhongjuan, a Zhongshan-based senior property analyst at Hopefluent Research Institute. “Future land plots to be auctioned here are likely to keep suspending pre-sales.”

The reversal in Zhongshan of a decades-long practice could be one signal Guangdong’s provincial housing authority is moving closer to a wholesale scrapping of pre-sales, despite authorities saying the issue is still at an opinion-gathering stage.

A document seen by Bloomberg News last month floats the possibility of starting a trial in some cities, particularly for new land plots. That would fit what’s going on in Zhongshan.

Guangdong officials may have chosen the prefecture-level city in the south of the Pearl River Delta for a trial because it’s unlikely to dent residential home supply in any meaningful way, Xie said. Inventory in Zhongshan is the ninth highest among 100 cities tracked by China Real Estate Information Corp, and would take about 20 months to sell out.

Two parcels bearing the new clause were sold without a hitch last week, while one went unsold last month, according to the city’s land authority.

©2018 Bloomberg L.P.