Beijing Tightens Presale Rules as Home Prices Rise Under Curbs

Beijing is tightening rules for real estate projects as local officials seek new measures to contain a rebound in home prices.

The city will require non-residential projects and residential developments bigger than an average 140 square meters (1,506 square feet) to meet requirements on construction progress before applying for presale permits, the local housing bureau said June 14. The move follows a June 6 rule ordering presale proceeds to be managed by banks and paid to developers gradually as construction progresses.

The Chinese capital has introduced the country’s strictest property curbs to deter speculators, including minimum down-payment requirements of 70 percent for second homes and a ban on single-person households buying more than one residence. New-home prices in Beijing increased 2 percent in May from April, when they rose 3.1 percent, the biggest gain among China’s four first-tier cities, according to SouFun Holdings Ltd.

The new measures, which will increase builders’ funding needs before sales begin and restrict their flexibility in using the presale proceeds, “are putting pressure on developers to accelerate new market supplies,” Hu Jinghui, a vice president of Bacic & 5i5j Group, the city’s second-biggest property broker, said in a statement yesterday. The city “aims to increase developers’ risk factors and interfere with their expectations for higher home prices.”

China requires developers to obtain presale permits from local housing authorities before they can sell apartments under construction. Builders also need to get other documents including land-use rights and construction permits.

Localized Policies

Developers can’t apply for presale permits for buildings with fewer than seven floors until the main structure is completed, or until half of the stories are done for taller projects, according to the June 14 statement on the local housing bureau’s website. The requirements apply to all non-residential projects whose land is bought after Aug. 1.

Beijing’s stricter presale rules “imply housing policies may become more localized,” Jinsong Du, a property research analyst at Credit Suisse Group AG in Hong Kong, wrote in an e-mailed note yesterday. “While this new measure should not have near term impact on Beijing’s housing supply, some may view it as a sign of further tightening measures to come.”

Former Premier Wen Jiabao on Feb. 20 called on city governments to “decisively” curb real estate speculation and rein in a rebound in housing prices this year. China’s new-home prices jumped 6.9 percent in May from a year earlier, the most since they reversed declines in December, according to SouFun, the country’s biggest real estate website owner.

Before it's here, it's on the Bloomberg Terminal.