China property stocks slide as new mortgage rules raise funding concerns

Chinese property stocks experienced a sharp decline on Monday following the introduction of new housing rules that restrict the use of pre-sales for funding projects. This development has raised concerns about developers facing longer cash-conversion cycles as Beijing attempts to restore confidence in the struggling housing market.

Leading property developers such as China Resources Land, China Jinmao, Greentown China, China Overseas Land & Investment, and China Overseas Property all saw their shares fall, with some dropping to their lowest levels in months. The new regulations, issued by the People's Bank of China and the National Financial Regulatory Administration, require mortgages for new homes to be issued only after projects are completed, while local governments are encouraged to promote the sales of completed homes.

This change aims to reduce delivery risks and address issues arising from China's presale-driven housing model, which came under severe pressure following the 2021 property downturn. However, the impact on developers may be significant, as they traditionally relied on selling apartments before completion to fund construction and working capital.

The requirement to wait until completion for mortgage financing could delay cash inflows, putting additional pressure on companies with faster asset turnover. Despite the reform's intention to make China's housing market safer and more sustainable, the transition may prove challenging for large state-backed developers, who remain heavily exposed to the change in the presale model.

Brief written by urgent.news from Investing.com's own syndicated text. Machine-written — may contain errors; check the original before relying on it.