SHANGHAI/HONG KONG: Chinese property developer shares fell on Monday after regulatory changes aimed at restructuring the system of selling new homes before completion sparked worries about cash flow and further declines in real estate investment.

Mainland agencies on Friday issued measures to reduce developers' reliance on funds collected from buyers before housing projects are completed, as Beijing seeks to shore up confidence in the crisis-hit sector.

The CSI300 Real Estate Index extended losses to 4.6% by mid- afternoon trading and an index tracking Hong Kong-listed Chinese developers was off 6.5%. The Hang Seng's Hong Kong developers index also lost nearly 5%.

Property developers have long relied on presales--selling units before they are ready to deliver--to fund their operations.

Under new rules released by the central bank and the financial regulator, ​mortgages would be issued only after residential projects had been completed.

Another set of guidelines requires local governments to promote ⁠sales of completed units to prevent delivery risks.

"Developers can no longer rely on early mortgage proceeds to fund construction. Construction-phase funding must come from developers’ own funding, development loans," Nomura said in a research report.

It added despite the damage to homebuyer confidence over the past few years, presales were still the dominant property business model in China, accounting for 68% of new home sales by floor space in 2025. But it expected the new regime could reduce the supply of new apartments that would push buyers towards existing housing.

State-backed developers were among the biggest losers, with China Jinmao, Yuexiu Property and Greentown China all shedding more than 14%.

Larger state-owned players China Resources Land and China Overseas Land & Investment declined more than 9%. Private-sector rivals Longfor Group and Seazen, deemed by investors to be financially sound, fell 7.2% and 5.5%, respectively.

YEARS OF SECTOR PAIN

The collapse of the property sector, entering its sixth year, remains a drag on the world's second-biggest economy, a pain point for millions of households and a force for export-reliant growth and trade friction for China.

Authorities have over the years aimed to stabilise the property market.

However, a recovery in new-home prices in the biggest cities, like Beijing and Shanghai, has stalled, while second-hand home prices in smaller, inland cities are down almost a quarter from 2020 levels.

State-owned property developers now dominate in market where most private property firms have defaulted.

However, three company executives told Reuters even state-backed players would not be immune, though it would still be easier for them to acquire bank loans and at lower lending rate of 2-3% compared with 5-6% for private developers.

Developers would be left with even less cash to purchase land or make new investment in a market where they are already struggling to sell new homes, they added.

"Forty percent of cashflow will be unavailable for business use, which means a 40% reduction of investment capacity in the near term," said one of the executives, who declined to be named as they are not authorised to speak to the media.

Official data shows presales and mortgages account for 40% of development capital.

China's government land sales revenue fell 30.8% from a year earlier to 1.1731 trillion yuan ($174.56 billion) over the first seven months of 2026, official data showed, while nationwide property development investment dropped 19.2% to 4.3 trillion yuan.

The new rules also seek to reduce homebuyers' debt by extending the maximum term for personal mortgages to 40 years from 30 years. That change could free up cash to boost domestic consumption in China, analysts said, but is unlikely to meaningfully lift housing demand.

The impact of the new rules would be felt most by larger developers with high asset turnover, analysts said.

The new measures "have raised the bar for developers in terms of their financing ability and management skills," Everbright Securities said in a note to clients.

The measures will speed up industry consolidation, as "most small players will not be able to make a profit and have to exit the market," it added. - Reuters