The most significant housing system reform in nearly 30 years has officially landed, signalling the end of the property market's reliance on high leverage and rapid turnover. The new policies are designed to gradually shift towards selling completed properties and introduce a pioneering 40-year mortgage term. These measures are expected to directly lower monthly repayments for homebuyers, overhaul the financing chain for developers, accelerate sector consolidation, and reshape the property market's future landscape.

Several foreign investment banks have noted that the comprehensive package of property policies released last Friday represents the most extensive housing system reform since the establishment of the pre-sale system in 1994 and the introduction of the 30-year maximum mortgage term in 1999. According to their analysis, this marks the beginning of a countdown for the high-leverage, high-turnover development model that has persisted for over two decades. The reform, spearheaded by five government bodies including the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources, the National Financial Regulatory Administration, the People's Bank of China, and the China Securities Regulatory Commission, covers the entire property chain from land acquisition, financing, and construction to sales and mortgages. The core initiatives involve guiding new projects towards the sale of completed properties, extending the maximum individual housing loan term from 30 to 40 years, and requiring that mortgage proceeds be disbursed only after project completion and filing. Research reports from Goldman Sachs, Deutsche Bank, and Barclays all concur that these changes will, in the long term, foster a healthier and more sustainable real estate market and promote industry consolidation. For homebuyers, the 40-year mortgage option helps reduce monthly payment burdens, while the shift to selling completed homes and stricter pre-sale fund supervision is likely to help restore buyer confidence.

Five-Pronged Coordination: Rebuilding the Development Financing System

According to a research report from Barclays, the core logic of this reform lies in redistributing risk, transferring the development and delivery risks, previously borne by homebuyers, to developers, banks, and the capital markets. China's pre-sale system, adopted from the Hong Kong model in 1994, allowed developers to initiate sales early in the construction phase, using buyers' down payments and mortgages to fund construction, effectively making homebuyers a source of low-cost financing. Barclays data indicates that in 2025, buyer deposits, advance payments, and individual mortgages collectively accounted for 66% of real estate development funding, acting as the cornerstone of developer liquidity. The new policy aims to completely restructure this funding chain. Regarding land acquisition, banks are explicitly prohibited from financing land premiums and related taxes, requiring developers to use their own capital. For pre-sales, projects must meet a higher construction milestone, namely topping out, before sales can begin, and mortgage funds will only be released after project completion and filing, significantly delaying developers' capital recovery timeline. Simultaneously, the policy introduces supporting measures to fill the financing gap. Development loan terms will be extended from the current 3-year maximum to 7 years, with a 5-year cap for pre-sale projects and a 7-year cap for completed projects, and principal repayment can be deferred until after project completion. The policy also implements a 'lead bank system' for closed-loop management of project funds and expands capital market channels, including equity financing, M&A loans, bonds, REITs, ABS, and private equity funds.

Sale of Completed Homes: Ambitious Direction, Progressive Pace

All three policy documents clearly identify the sale of completed properties as the future primary model, but they do not impose an outright ban on pre-sales. Instead, they adopt a differentiated, phased approach. According to the policy language, for newly transferred residential land and projects that have not yet obtained a construction project planning permit, 'preference should be given to the sale of completed properties'. For ongoing projects that have secured planning permits, 'the sale of completed properties is encouraged'. Existing projects that already have permits can essentially continue operating under the original rules. Barclays points out that this phrasing is primarily a directional guide, leaving the practical implementation of 'preference' or 'encouragement' to be clarified by local regulations. A Goldman Sachs research report also emphasizes the policy's flexibility, noting that local governments will determine their own implementation timelines and scope, without a 'one-size-fits-all' mandate. The report states that since 2022, 30 provinces and cities have piloted the shift from pre-sales to cash sales, and market data indicates no significant impact on prices or sales volume, which somewhat reduces resistance to the reform. Goldman Sachs anticipates that the new policy will lead to a further contraction in new project supply, potentially accelerating the process of rebalancing supply and demand.

For Homebuyers: Lower Monthly Payments, Enhanced Delivery Guarantees

The 40-year mortgage term is the most direct support measure for homebuyer demand in this policy package. A calculation by Deutsche Bank shows that for a 2 million yuan mortgage with an interest rate of 3.5% under equal installments, extending the term from 30 to 40 years would reduce the monthly payment from approximately 8,980 yuan to about 7,750 yuan, saving roughly 1,230 yuan per month, a decrease of about 14%. Regarding buyer protection, the policy requires that pre-sale funds be deposited into a supervised account at the lead bank and remain controlled until project completion and acceptance inspection. If a developer fails to deliver on time, buyers have the right to terminate the contract and recover their deposits. Additionally, the policy promotes 'delivery with certificates', completing property registration concurrently with the handover. Deutsche Bank believes these combined measures will 'significantly reduce the risk of homebuyers being burdened with debt for delayed or abandoned projects'. The policy also introduces a sales deposit system, allowing developers and buyers to sign subscription agreements and collect small deposits to lock in the property and price, which helps mitigate developers' primary concern about price uncertainty under the completed-homes sales model. Goldman Sachs suggests that a deposit ratio of 10% or more of the contract amount is sufficient to maintain buyers' purchase intentions.

Developers and Financial Institutions: Accelerated Consolidation

Multiple institutions agree that the new policy will accelerate sector differentiation, with well-capitalised state-owned enterprises and quality private developers poised to benefit. A scenario analysis by Barclays of 10 major Chinese property developers shows that under a baseline scenario where the pre-sale funding gap is filled with a 50% debt and 50% equity mix, the average net gearing ratio would rise by about 5 percentage points to 70%, with total leverage increasing by approximately 25%. In a scenario where the entire gap is financed through debt, the average net gearing ratio would surge by about 41 percentage points to 111%, with total leverage up by 49%. For banks, institutions note that the lead bank system and longer development loan terms expand opportunities for loan business growth, albeit with longer loan durations and direct exposure to project construction and delivery. Risk Warning and Disclaimer: Market risk exists, and investment requires caution. This article does not constitute personal investment advice and does not account for the specific investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions herein align with their particular circumstances. Investment decisions are the sole responsibility of the investor.