China's Presale Overhaul to Reshape Property Market, Cut Sales 20%

China's new presale rules will disrupt new home supply for the next two and a half years, with CLSA forecasting a 20 percent drop in sales volume by 2027.

China's overhaul of its commercial residential property sales system will disrupt new home supply for the next two and a half years, with CLSA forecasting sales volume to fall 20 percent in 2027 before property prices rebound 5 percent.

"The reform will reshape developers' cash flow and the residential supply market," CLSA analysts wrote in a research report dated Aug. 31, noting that pre-sale projects can only launch after structural topping-out under the new system.

Sales proceeds will face stricter supervision through escrow accounts, while deposits for completed-home projects can only be collected after construction commences. The maximum residential mortgage tenor has been extended from 30 years to 40 years, but loans can only be drawn down after project completion. CLSA projects new home sales value to decline 16 percent in 2027, then grow 15.5 percent in 2028 as tighter supply improves the supply-demand balance in higher-tier cities.

The reform creates clear winners and losers across China's property chain. Homebuyers gain from lower delivery risks and improved affordability, while banks benefit from longer development loans and interest-free escrow funds. Smaller developers may exit the market, and local governments face reduced land sale revenue.

Sales Volume to Drop 20% Before Price Recovery

The policy shift marks one of the most significant structural changes to China's housing market since the presale system was introduced in the 1990s. Under the previous framework, developers could sell units off-plan and collect payments well before construction was complete — a model that fueled rapid expansion but left buyers exposed when developers defaulted on unfinished projects.

CLSA's top picks reflect the broker's view that financial strength will become the defining competitive advantage. BEKE-W (02423.HK), the property brokerage platform, carries a target price of HKD62. China Resources Land (01109.HK) is rated Outperform with a HKD40.8 target, while Yuexiu Property (00123.HK) has a HKD5.5 target. The broker removed China Jinmao (00817.HK) from its top pick list due to its relatively high net gearing ratio and greater exposure to cash flow pressure.

The reform's impact is already visible in developer earnings. Yuexiu Property reported first-half 2026 net profit plunged 93.6 percent year-over-year to RMB87.2 million, with interim dividends cut to HKD0.9 cents per share — a stark illustration of the cash flow strain facing the sector.

Banks Gain, Local Governments Lose

For banks, the extended mortgage tenor and escrow requirements create a more stable lending environment. Development loans will run longer, and interest-free escrow funds provide a new deposit base. However, the reduced land sale revenue for local governments could constrain fiscal spending in property-dependent regions, potentially slowing infrastructure investment.

The last major policy intervention in China's housing market — the "three red lines" deleveraging campaign — triggered a wave of developer defaults that rippled through global credit markets. This reform takes a different approach, focusing on the sales mechanism rather than balance sheet constraints, but the near-term supply disruption could be equally significant.

CLSA expects the supply-demand balance to improve most notably in recovering higher-tier cities, where demand remains relatively resilient. The broker forecasts property prices to rise 5 percent in 2027, with new home sales value growing 15.5 percent in 2028 as the market stabilizes.

For investors, the reform indicates a structural shift toward developers with strong balance sheets and stable cash flow. Companies that can navigate the transition period — maintaining liquidity while construction timelines extend — are expected to gain market share as smaller competitors exit. The extension of mortgage tenors to 40 years also improves affordability for first-time buyers, potentially supporting demand in the medium term.

This article is for informational purposes only and does not constitute investment advice.