New Shenzhen Housing Policy May Drive Smaller, Indebted Developers Out

Developers in China often sell homes even before construction begins. This benefits cities, which can sell land quickly, and developers, who don't need as much bank financing if they can sell enough homes ahead of time. Speculators or need to make small downpayment. It creates oversupply when the market cools, which is why there are some eye popping estimates of real estate inventory based on the total amount of planned housing. Buyers also have incentive to walk away if prices slide. Developers with less access to capital rely more heavily on advance sales.

In Shenzhen, the government is looking to shift the market towards selling finished homes in a bid to limit the rise in home prices. It's a pilot project for now, but if the test is successful, it may push smaller and financially weaker developers out of the city:
iFeng: 部分一线城市试点现房发售 中小房企首当其冲

At present, the Shenzhen market, the majority of the new disc are in the form of pre-launch of Forward House, the city of Shenzhen is the first contact with controlling pre-sale system. As a result, the implementation of the 22-year real estate sale license system is quietly changing, the pilot could become a future trend in the sale of real estate in Shenzhen.

Some analysts said, the implementation of real estate is now on sale from the sale into the policy, developers sold Forward House get a lot of risk-free capital construction costs have does not work, perhaps the further regulation of the Shenzhen property market initiatives. At present, Shenzhen extremely scarce supply of land, take-the-shelf system can raise the threshold, the lack of financial strength of small developers in the door, and keep land prices from rising too fast. In addition, sales of existing homes also makes home buyers can purchase to reduce check-in time, and thus avoid risks.

According to data, medium sized developers obtain about 40 percent of funding from pre-sales:

Market data show that real estate project development funding funds owned enterprises and financial accounting system were obtained by the sale at about 4o percent, while the rest are mainly bank loans and other sources of loan funds. Some developers sell homes only 8-9 months after obtaining land, or even less, but now the system will stretch the sales cycles out to 2-4 years. Thus, if the sale of finished real estate is now a trend, small and medium real estate business in Shenzhen has become more difficult.

iFeng: 部分一线城市试点现房发售 中小房企首当其冲