Zhuhai International: The threshold for new home pre-sales in mainland China has been raised, temporary pain for long-term health.

Zhao Yin International released a research report stating that mainland regulatory authorities issued a notice on August 28 regarding the improvement of the sales system for commodity housing. They suggested raising the pre-sale threshold for newly constructed commodity housing to "structural completion" and implementing full regulatory oversight on pre-sale funds for newly transferred land parcels. The bank believes that the comprehensive implementation of this policy will tighten developers' liquidity, extending the funds recovery cycle from 3 to 6 months to 6 to 12 months, accelerating the exit of undercapitalized small developers from the market, and further concentrating market share among state-owned enterprises. On the demand side, it could reduce the risks of unfinished projects and delayed deliveries, which would help boost buyer confidence. Zhao Yin International views this as a landmark measure to break the vicious cycle in the industry, directly addressing the root causes of the problem. Investors have reacted more positively than expected, focusing on the long-term impacts. This policy reinforces the themes of supply contraction and market share concentration, putting the industry on a trajectory toward medium- to long-term recovery, with limited downside potential, and recommends selective equity investment. Zhao Yin International considers this reform a key measure of "trading short-term pain for long-term industry health," directly addressing the delivery risks that erode buyer confidence and demonstrating the regulatory authorities' proactive stance in breaking the industry's vicious cycle. For state-owned developers engaged in active trading, the policy's impact should be limited due to lighter cash flow pressures, smooth financing channels, and lower funding costs. The bank recommends selectively investing in quality leading state-owned enterprises with a high proportion of commercial properties and core city land reserves.