(Yicai) Sept. 10 -- Xiamen and Quanzhou, two major cities in southeastern China, have listed residential land requiring homes to be sold only after completion, marking the rollout of a new housing policy aimed at reducing risks from China’s long-standing pre-sale model.

The two cities in Fujian province -- second-tier Xiamen and third-tier Quanzhou -- have each designated one residential plot as a completed-home sales pilot, showing local governments are moving cautiously as the reform enters implementation.

Xiamen regulators announced the sale of two residential plots on Sept. 3, with one designated for completed-home sales, the first such residential land offered in a major Chinese city since the new policy was introduced. Quanzhou followed on Sept. 9, designating one of four newly listed residential plots for completed-home sales.

The pilots come as China seeks to reduce risks exposed by its prolonged property downturn. Pre-sales, in which buyers purchase homes before completion, have long dominated the new-home market and provided developers with a major source of construction funding, leaving buyers exposed when cash-strapped builders fail to deliver projects.

The limited scale of the pilots suggests the transition will be gradual, requiring developers to adapt to longer periods before recovering their investment.

Xiamen, Quanzhou Launch Pilots

The choice of pilot plots suggests local authorities are tailoring the new sales model to different market conditions rather than taking a one-size-fits-all approach.

The Xiamen pilot plot has a low-density floor area ratio of just 1.2 and a starting price of CNY3.6 billion (USD531 million), equivalent to about CNY58,100 (USD8,664) per square meter of floor space. The land sale is scheduled for Sept. 24.

By contrast, the Quanzhou pilot has a more typical urban floor area ratio of up to 2.8 and a starting price of CNY342 million (USD51 million). Its sale is scheduled for Sept. 29.

The land transfer announcements in both cities require developers to complete project acceptance procedures and the first registration of the homes before registering them for sale. Quanzhou’s announcement also sets out a series of compliance requirements for the project developer.

The pilots are an important step in implementing the reform of China’s commercial housing sales system announced late last month, said Yan Yuejin, deputy director of E-House China Research and Development Institute.

Yan noted that each city selected just one plot and that Xiamen chose a low-density, high-priced project with relatively strong market demand, indicating a cautious approach to the new policy.

Real estate research firm CRIC said the policy will prompt developers to adjust their strategies. When acquiring land, they will need to consider not only land prices and sales expectations but also longer capital cycles and changes in financing, development, and sales models when calculating investment returns.

Completed-Home Sales to Expand Gradually

The shift to completed-home sales is expected to be gradual rather than immediate.

CRIC said that completed-home sales and pre-sales after a building’s main structure has been topped out are likely to coexist for some time as developers and homebuyers adapt to the new system. But the number of land parcels requiring completed-home sales is expected to gradually increase.

China’s housing ministry, natural resources ministry, and National Financial Regulatory Administration jointly issued a notice on Aug. 28 requiring local governments to give priority to completed-home sales for residential projects on newly transferred land and previously transferred land that have not yet received construction engineering planning permits. Projects that already have such permits are encouraged to adopt completed-home sales.

For projects that continue to use pre-sales, individual buildings must have their main structures topped out before homes can be offered for sale, according to the policy.

Officials said in response to media questions when the policy was released that the move aims to guide property developers to set the scale of their operations according to their capabilities, strengthen risk awareness, abandon the “high debt, high leverage, and high turnover” expansion model, and reduce potential risks.

Editors: Tang Shihua, Emmi Laine