China: Presales of properties sinks to 18-year low amid halting projects

Beijing [China], September 4 : The Chinese real estate market which once was a major contributor to the Chinese economy has reached the lowest share of new-home sales in 18 years as potential home-owners are shying from making purchases as after a string of cash-strapped developers halted construction, Nikkei Asia reported.
Reportedly, preselling of real estate properties allows the developers to recover their investments faster, and provide them cash and cash equivalents for their future projects.
Preselling a home is making it available for purchase before it is ready to move in, and this has become the main method of purchasing houses in China.
However, presales operations of homes had decreased by around 30 per cent. Additionally, new-home sales in the country also fell 21 per cent for the January-July period this year, Nikkei Asia reported citing the National Bureau of Statistics.
The housing recession in China has led to a prolonged economic crisis in real estate developers, most of which have halted constructions on presold properties since 2022. This resulted in homebuyers being kept away from moving in because of construction delays. This delay has caused a pushback with protests and mortgage strikes.
According to Nikkei Asia, the Chinese Communist Party (CCP) currently worries that dissatisfaction over delayed delivery could lead to high criticism. In its third plenum, held in July this year, the party had proposed plans for presales reforms and promoting sales of completed properties in China.
Reportedly, local governments have crafted measures based on this policy from the third plenum, which includes giving real estate developers tax breaks and increasing banks' credit lines. But on the condition that, the homes are sold to owners after completion only.
If the developers in China increase the number of properties sold after completion, the time needed to recover investments will drastically increase. Additionally, the construction costs for homeowners could also rise 20 per cent to 30 per cent compared with presales, the Nikkei Asia report stated.
According to the report, even if the real estate sales improve, prices continue to see downward pressure, and it is unclear if the country's developers would be able to recover the necessary funds and improve their cash flow amid the sinking real estate market in China.
"The turnover of funds will slow, making it difficult for real estate companies to manage their business as aggressively as before," said Yusuke Miura, a senior researcher at the NLI Research Institute.
Furthermore, the new-home sales show no signs of bottoming out. The prices have continued to decline in 66 of 70 major cities this July, according to the National Bureau of Statistics.
The prices for properties have fallen in more than half of the cities for the 14th consecutive month this year. Prices declined by an unweighted average of 0.6 per cent across the 70 cities. With the negative trend continuing since June 2023, real estate developers are struggling to secure funds for projects, the Nikkei Asia report added.