Heard on the Street: Using presales for financing might seem cheap compared with high-yield bonds, but Chinese property companies may have now promised buyers too much
By Mike Bird Sept. 19, 2019 2:48 am ET China’s property giants are notorious for their rapacious issuance of debt. But a more politically sensitive liability has risen even faster, posing a less well known risk to the country’s housing market.
The practice of selling homes once construction has started—but often years before completion—now makes up more than 85% of total sales in China. But the two have since diverged in an extreme way. Completions are now well below their 2014 peak, while presales have continued to surge. In the 12 months to August, the NBS recorded more than twice as much floor space presold as completed, a gap of more than 600 million square meters.
But it still leaves developers vulnerable to a downturn in demand—or, more likely, a regulatory clampdown.
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