(Yicai) Sept. 5 -- A residential parcel of land being put up for auction in the Chinese first-tier city of Shenzhen has the pre-condition attached that properties must be ‘ready-to-move-in’ before sales can begin, triggering speculation among market observers that China might be about to phase out the pre-sales system that has been in place for more than 20 years.

A residential plot near Shenzhen Bao'an International Airport was listed in an auction of land use rights announcement published by the Shenzhen Public Resources Trading Center yesterday. Whoever wins the bidding will be required to only sell the properties when they are finished.

The requirement to only sell 'ready-to-move-in' housing, as opposed to the pre-sales model where there is a risk of developers misappropriating the funds, is an attempt to implement the government’s recently announced push to promote the sales of finished housing and this should be the trend going forward, said Ma Hongbo, general manager of CRIC Asset Management’s South China branch.

Housing pre-sales help developers raise development funds and reduce costs, but there is also the risk that developers will misuse these funds, resulting in the failure to hand over projects on time and triggering social conflict.

Last month, Dong Jianguo, vice minister of the Ministry of Housing and Urban-Rural Development of China, said that regulators will "vigorously promote the sale of completed housing in an orderly manner" in the future.

This is a practical example of regulators exploring the model of selling completed apartments, said Luo Yu, general manager of One Urban Renewal. But Luo said he has not heard anything about regulators formulating policies on the sale of finished housing.

This is just the requirement for a single plot of land and it does not mean that all of Shenzhen’s land plots for residential use will have similar pre-conditions, an informed source told Yicai.

For example, in 2016 a parcel of land in Shenzhen’s Longhua district was sold with a completed property sales condition attached, but other plots auctioned off at the same time still allowed for pre-sales, the insider said.

The main reason why the new plot is being sold as finished housing is to boost consumer confidence and eliminate buyers’ concerns about the late delivery of properties by developers amid the prolonged downturn in the real estate market, an executive from a leading real estate company told Yicai.

The sale of completed homes will mean the properties enter the market late, which will help relieve some of the pressure on developers’ inventories, the person said. But of course, this will also make it more expensive for developers to develop this land.

Editors: Tang Shihua, Kim Taylor