China Mandates Finished Home Sales as Developer Losses Mount

Chinese regulators issued a joint directive mandating a shift toward completed-home sales, putting fresh liquidity pressure on property developers as the market downturn entered its fifth year.

The policy overhaul on August 28 coincided with wider mortgage easing, including raising the debt service-to-income cap to 60 per cent from 55 per cent and extending maximum loan terms to 40 years from 30 years.

Cash Flow Squeeze for Distressed Builders

Pre-sales historically funded the bulk of residential construction across mainland China. Ending that practice forces developers to finance entire projects up front, stretching cash conversion cycles at a time when private builders remain cut off from standard bank lending.

State-backed developers with deeper balance sheets stand to gain market share while defaulted operators struggle to buy land. Fitch Ratings warned that the rules raise the bar for internal financial management just as distressed builders attempt to revive project deliveries.

Recent regulatory changes place even higher demands on developers’ cash flow and financial management capabilities.

Asset disposals and external debt restructurings offer the only immediate route to liquidity for private builders, according to Shanghai-based property consultancy E-house China.

Country Garden and Sunac Narrow Half-Year Deficits

Interim earnings released late August showed that finished restructurings have not yet restored profitability. Country Garden reported first-half revenue of 44.1 billion yuan ($6.6 billion) and a net loss of 15.62 billion yuan, narrowing its deficit by 16.3 per cent from a year earlier.

Sunac posted six-month sales of 16.35 billion yuan, down 18.2 per cent year on year. Its net loss reached 12.54 billion yuan, a 2.1 per cent reduction from the prior period.

The operational pivot follows the life imprisonment sentence handed to China Evergrande founder Hui Ka-yan. While risk resolution on historical offshore bond defaults is progressing through courts in Hong Kong and the mainland, physical housing turnover across primary markets remains depressed.

Investors now await monthly transaction figures for September across top-tier cities to gauge whether 40-year mortgages and easier debt thresholds can lift buyer demand under the new finished-home regime.