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Hong Kong’s Fix for China’s Mortgage Boycotts

The presales model has advantages for both buyers and developers—but the apartments have to get built.

relates to Hong Kong’s Fix for China’s Mortgage Boycotts
Illustration: George Wylesol for Bloomberg Businessweek

The refusal of some Chinese consumers to pay mortgages on unfinished homes has shed light on the sales model that dominates the country’s trillion-dollar real estate market, where apartments are often bought 18 months to two years before they’re completed. Presold units account for more than 70% of residential home sales.

Once a contract is signed, a homebuyer’s down payment and mortgage proceeds from the bank are wired into an escrow account. In theory a developer can gain access to some of that money for construction and get the rest only when the home is handed over.