(Bloomberg) -- China is road testing a new property policy in an experimental city President Xi Jinping is building outside Beijing to try to stabilize a housing market rocked by an ongoing credit crisis.
All homes in the Xiong’an New District, which is about 130 kilometers (80.8 miles) southwest of Beijing, must be built before they can be sold, the official Xinhua News Agency reported Wednesday, citing the city’s housing administration center.
That’s a major departure from the current pre-sale model common across China that sees homebuyers typically pay developers upfront for apartments. For decades, that system allowed developers to expand at a rapid pace. Beijing’s move to pare back borrowing in the freewheeling real estate sector in recent years, however, has resulted in delays in home building and a chain of developer defaults.
The Xiong’an move would mean homebuyers can “get immediately what they pay for,” Xinhua said in its report.
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Described by Xi as a project of “millennial significance,” Xiong’an has been billed as a high-tech city teeming with leading-edge companies, research institutes and world-class transportation that could rival Shenzhen and Shanghai. In reality, since its blueprint was unveiled in 2017, progress has been slow with many residents and institutions dragging their feet on relocating.
“Xiong’an provides clues for the direction of future policies. It’s a reform testbed and it’s trying out new development models for the real estate market and developers,” said Bruce Pang, chief economist at Jones Lang LaSalle Inc. “However, other cities may not follow suit in the short term. Xiong’an is like a blank paper and so it’s a convenient place for trials and explorations.”
China has unleashed a steady stream of stimulus measures in recent months to try to reinvigorate sales in the slumping real estate sector, as one of the nation’s biggest developers verges on defaulting.
Chinese regional authorities have considered ending the practice of pre-selling homes since at least as early as 2018. Before Xiong’an, the southern island province of Hainan and the southeastern city of Fuzhou published rules against selling apartments before they were finished, but no such curbs have ever been implemented nationally.
Analysts say reducing the property sector’s reliance on debt without leaving buyers caught short will be difficult.
“Delivery on payment will be the goal,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “The transition will not be easy. I expect the policy will be applied to low-tier cities first.”
--With assistance from Jenni Marsh.
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