Should property presale system end

2022-04-28 0 By

The presale system of real estate has become the focus of heated debate once again.The cause is the 2022 National two Sessions, which has become the focus of attention of many representatives and members.Zhou Shihong, a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), told China Newsweek that abolishing the pre-sale system should be put on the agenda as soon as possible.Prior to this, Zhou Shihong has submitted the proposal of “implementing the existing sale of commercial housing” for four consecutive years.In addition to Zhou, shi Weidong, CPPCC member and president of Nantong University, Lu Tianxi, NPC deputy and director of Jiangxi Provincial Department of Housing and Urban-Rural Development, and Zhang Jianming, CPPCC member and vice chairman of Sichuan Federation of Industry and Commerce, and other representatives from different fields, also proposed to “abolish the pre-sale system of real estate”.In recent years, the pre-sale of real estate into the rotten tail and a variety of housing disputes continue to appear.Many experts call for the house presale system to come to an end.Why is there pre-sale?Around the world, the pre-sale system is not a very common phenomenon.Even if some countries have real estate pre-sale system, it is different from the current domestic pre-sale mode of paying all the money.In the U.S., most real estate sales are existing, and developers can’t get money from buyers until they hand them over.Zheng Yang, a Chinese real estate agent based in the US, says that in the US, half of all homes are usually reserved before a developer can get a construction loan from a bank.Buyers pay an initial deposit of about 3 percent of the total price, which is held in escrow and not available to the developer.The developer can only receive the purchase price after the roof is completed and delivered.In the UK, a down payment of 10%-25% is required within 21 days of signing the purchase agreement, followed by 5%-10% of the second and third payments within 6-24 months, and the final payment is made when the house is delivered.China’s real estate presale system began in 1994, and was specified in the Real Estate Management Law and subsequent legal documents.Since its promulgation, the system has profoundly influenced the Chinese real estate market.”The pre-sale system was introduced when the real estate industry was generally short of funds.”An industry insider who has worked in the real estate industry for many years recalled to China Newsweek.It is worth mentioning that many real estate systems in the mainland later learned from Hong Kong.Hong Kong’s model of “selling uncompleted apartments” has evolved into the current pre-sale system in the Mainland.”The pre-sale system only accounted for a very small part of real estate sales at the beginning, when Chinese people were still worried about the prospect of housing.But prefabricated homes often cost less than existing ones, and the follow-on price advantage attracts more buyers.Later the major cities real estate heat, housing enterprises began to high turnover mode, pre-sale made for the general mainstream.”The industry recalled.But over time, China’s property market has changed radically today.Wang Menghui, minister of Housing and Urban-rural Development, recently publicly stated that China’s urban development has entered an important period of urban renewal, from large-scale incremental construction in the past, to quality improvement and incremental structural adjustment, that is, from “whether there is” to “whether it is good or not”.Zhou Shihong believes that with the development of the financial system and capital market, they provided diversified financing way, after 30 years of development, real estate development enterprises have already completed the accumulation of capital, strong financial strength and market competition ability, historical conditions of the existence of commodity house opens to booking system no longer exists.Zhou Shihong believes that the real estate presale system is unreasonable, because the presale system is very unfair to the buyers.”The essence of the pre-sale system is that the buyer pays in advance, and the developer delivers the house. The waiting period for the house is generally about two years. During this period, the buyer not only has to bear the bank loan interest, losing the income of the down payment investment, but also has to bear the risk of overdue delivery or failure to deliver the house.”Zhou shihong told China Newsweek.Shi Weidong believes that the huge risk of housing sales lies in paying the full amount, or even the loan to pay the full amount.In the case of banks, they are actually huge risky assets.”First of all, the houses were not built and the money lent to the buyers was almost unsecured.Second, by collecting pre-sale money, real estate developers have already added leverage, and then bank loans, the leverage is too big, once for various reasons, developers go bankrupt and run away, the house is not finished, it will seriously damage the interests of home buyers and the bank’s capital security.”Shi weidong said.In recent years, under the presale system, the phenomenon of real estate rights protection is common, especially hardcover houses, there are many cases of “housing is rights protection”.According to Shi, starting from 2020, housing will be oversupplied on the whole, with only structural shortages in local areas and a few big cities.”People are taking a huge risk by buying off-plan houses.Developers because of the house sales is not good, capital chain fracture, planning adjustment, construction costs increase, builders default and other reasons shutdown, even if the house reluctantly built, there will be all kinds of quality problems, real estate certificate do not come down and other risks.Moreover, there are almost no developers to take over the unfinished buildings, resulting in a lot of waste of resources.There are many cases of this phenomenon around the country.”He said.In Zhou Shihong’s opinion, it is the pre-sale system that promotes the blind expansion and vicious competition of developers, resulting in high turnover and high debt, which is easy to cause a series of problems such as broken capital chain of developers and idle projects.More serious is the large housing enterprises once the capital chain tension, more hidden risks will be exposed.According to Zhou shihong, Evergrande group still has 778 projects under construction, involving 223 cities.Several hundred billion yuan of evergrande’s total debt is domestic and foreign financial debt.Evergrande will provide guarantee to the bank before the house is delivered for the certificate, and the bank has already issued loans to Evergrande. If the certificate cannot be delivered on time, Evergrande can neither assume the repayment guarantee responsibility nor mortgage the property with the bank, and the repayment of the bank loan is also in an uncertain state.Will housing prices rise if the pre-sale system is abolished altogether?Of all the worries, this is the most important.”It doesn’t have to cause housing prices to rise,” Mr. Zhou said.He analyzed that once the presale system is canceled, the industry will accelerate survival of the fittest, even if the elimination of a number of unqualified small enterprises, there will still be plenty of capital, strong quality housing enterprises to participate in the relevant construction.In 2021, with the tightening of real estate policies around the country, many real estate enterprises are in a tight state of capital chain.Yan Yuejin, chief researcher of E-House Research Institute, said that given the recent pressure on housing sales and capital, the blind transition to the existing housing sales model will further increase the pressure. In fact, some localities have lowered the pre-sale license standards rather than raising them.Shi Weidong analysis, the real estate industry is a typical high debt industry, housing enterprises need to invest a lot of early capital, cancel the pre-sale of commercial housing, developers will be less a financing channel, small and medium-sized developers with poor financing ability will be forced to exit.The capital pressure of large housing enterprises will also become greater, so as to take more cautious.In turn, local governments can’t sell their land or get a price for it.All this is likely to reduce the overall supply of new homes, leading to higher prices and lower government revenue from land sales.However, many experts believe that the “combination of measures” can reduce the risk of the cancellation of pre-sale system to the minimum.”For example, we need to launch a nationwide trial of real estate tax as soon as possible, and auction land prices in cities should be reasonable. The government and banks can increase funding and policy support for high-quality and honest developers.”Shi suggested.In response to calls to abolish the pre-sale system, some localities have already started trials.In 2020, Hainan issued a document to implement the existing house sales system, becoming the first province in China to fully implement the existing house sales.Opening up part of the land for “existing house sale” is the latest move in many urban land auctions.In August 2021, the second batch of land supply in Hangzhou launched 10 existing house sales plots, but by October, none of the above plots were auctioned.Beijing is also the first city in China to launch “competitive sales of existing houses”.It is worth noting that in the first batch of centralized land supply in Beijing 2022 held in February, 50% of the 18 plots of projects set up the “competition for existing house sales area” link, but only one plot in Cuigezhuang, Chaoyang District was finally concluded with the “existing house sales” condition of 41,000 square meters.Nanjing, Chengdu and other cities have put forward the implementation of existing house sales in the early years, but the progress is neither smooth nor ideal.In 2018, Guangdong Province Real Estate Industry Association issued a preliminary notice to its members that it would gradually cancel the pre-sale system of commercial housing and fully implement the current sale. However, it was immediately revealed by the media that it was “just collecting opinions”, and it was eventually abandoned.”Due to the inertia of the industry, the cancellation of the pre-sale system will definitely encounter strong obstacles, but it is urgent to accelerate the exploration of existing house sales, whether it is to launch existing house sales plots or regional pilot projects.”Zhou shihong said.