(Yicai Global) Feb. 9 -- A number of Chinese provinces, including Henan, Sichuan and Shandong, have recently started to introduce a completed-home sales model as the existing pre-sales system has led to a number of incidences when cash-strapped developers squandered the funds, leaving them unable to deliver the properties to buyers on time.

Henan province will look into reforming the pre-sales system in the central province’s biggest cities, Zhengzhou and Kaifeng, and pilot sales of finished housing, it said. Southwestern Sichuan province as well as eastern Shandong and Anhui provinces have also proposed similar policies in the past two weeks.

They are responding to a directive issued by the Ministry of Housing and Urban-Rural Development last month that stipulated “finished-home sales can be carried out where conditions permit, and in areas where pre-sales continue to be implemented, there should be supervision of the capital to prevent the misappropriation of housing funds. There must be no new risks to the handover of properties.”

A new development model for the real estate sector is being formed and finished-home sales will be a big part of this, said Yan Yuejin, research director of think tank E-House China Research and Development Institute. Henan province’s selection of its capital city Zhengzhou as the location for such a pilot reflects this transformation and other provincial capitals are likely to follow suit, he added.

Phasing out the pre-sales model is going to be difficult and the finished-home sales system is not likely to be rolled out on a large scale, said Chen Wenjing, research director of the China Index Academy.

Developers rely on the cash raised through pre-sales to finance the completion of housing projects, a market insider said. A finished-home sales model will significantly delay payment collection by developers at a time when they are under great liquidity pressure and many might not be able to cope.

China’s pre-sales model was introduced 29 years ago there was a lack of properties on the market, Kuang Weida, director of the Center for Urban and Real Estate Research at Renmin University, told Yicai Global previously. Worried that prices would keep rising, buyers were willing to take the risk of purchasing the homes before they were finished.

However, in the current tight financing environment, developers are struggling to complete construction on schedule. Last July, purchasers in around 150 housing projects across the country banded together to demand that developers start rebuilding and that the houses are delivered within a reasonable period of time otherwise they will stop repaying their mortgages.

Editor: Kim Taylor