China property stocks fall on mortgage rules

Chinese property stocks fell sharply on Monday after new housing rules restricted the use of pre-sales to fund projects. The move raises concerns that developers could face longer cash-conversion cycles, according to a report from Investing.com.

Major developers saw significant share price declines. China Resources Land shares fell 7.7% to HK$30.62, their lowest level since July 3. China Jinmao fell 14.7% to HK$1.34, its lowest since August 7.

Other notable declines included Greentown China, which dropped 12.8%, and China Overseas Land & Investment, which fell 6.4%. China Overseas Property declined 3%.

New Mortgage Rules Explained

The new rules were issued by the People's Bank of China and the National Financial Regulatory Administration. They require mortgages for new homes to be issued only after projects are completed. Local governments are also being encouraged to promote sales of completed homes.

The measures are intended to reduce delivery risks. They aim to address problems that emerged after China's presale-driven housing model came under severe pressure following the 2021 property downturn.

Impact on Developer Financing

For developers, the change could disrupt a crucial part of the industry's traditional financing model. Developers have long sold apartments before completion. They used buyers' deposits and mortgage-backed proceeds to fund construction and working capital.

Requiring mortgage financing to wait until completion could therefore delay cash inflows. This puts greater pressure on companies with faster asset turnover.

The rules also extend the maximum term of personal housing loans to 40 years from 30 years. This could potentially reduce borrowers' monthly repayment burden.

The immediate market reaction reflects a tension at the heart of the reform. The measures are intended to make China's housing market safer and more sustainable. But they could make life harder for developers during the transition.

State-Backed vs. Property Management Firms

That distinction is particularly relevant for the large state-backed names in the sector. China Overseas Land & Investment, China Resources Land, Greentown China and China Jinmao are all state-backed. This should give them better access to financing than weaker private developers.

But their size also means they remain heavily exposed to the change in the presale model.

China Overseas Property is a different case. As a property-management company, it is less directly exposed to the mortgage and presale changes. It does not primarily rely on selling homes.

Its exposure is instead indirect. A prolonged slowdown in new-home development could eventually reduce the pool of newly completed properties entering its management portfolio.