(Yicai) May 15 -- China is not ready to abandon its pre-sales model, where homes are sold before they are built, in favor of selling only completed housing, as such a shift would put too much pressure on real estate developers, according to an article published by Chinese state media yesterday, refuting claims made in a recent Bloomberg report.

Requiring developers to only sell finished homes would extend project timelines to between three and five years from two years, according to the report by China Real Estate Business, a media outlet affiliated to the Ministry of Housing and Urban-Rural Development. Developers are already struggling and last year, their average net profit margin was minus 8.3 percent.

China is considering a significant overhaul of its housing market sales model, moving away from the widespread pre-sales system toward requiring developers to sell only completed properties to address risks associated with unfinished projects and improve buyer confidence amid the ongoing property sector challenges, Bloomberg reported on May 8.

The finished housing sales model would make it more difficult for developers to acquire land, adding uncertainty and slowing the recovery of the land market, the China Real Estate Business report said. For instance, after Hainan province introduced this model in 2020, the area of land sales plummeted by 54 percent.

Selling completed homes is a complex task that affects not just real estate, but also finance, land and the broader housing ecosystem, and is something that cannot be rushed into, the article said. Instead, it is necessary to first roll out local pilot programs and to implement them gradually.

Existing local pilot projects have shown that a finished home sales model would require a number of supporting policies including financial support policies, tax and fiscal policy support, and the implementation of differentiated regional policies.

At least 30 provinces and cities have published plans to promote pilot programs for the sale of finished homes, the article said. Eighteen cities have rolled out substantial supporting measures. And the proportion of finished home sales jumped 18.1 percentage points last year to 30.8 percent of all commercial residential property transactions from 12.7 percent in 2020.

The current pre-sales system, first introduced in the 1990s, was meant to help developers raise funds quickly and build homes faster during a period of surging demand. However, as the property market cools and sales slow, the pre-sales model has drawn criticism when developers fail to finish their projects on time or deliver sub-standard homes.

Editor: Kim Taylor