China real estate developers under a completed property sales model Report Interpretation

Overview

Goldman Sachs assesses how China’s “828” policy shift toward a completed-property sales model could alter developers’ cash flow, leverage, returns and future land investment. It sees substantial downside for new-project economics under strict implementation, but limited near-term effect on property-price recovery and relatively greater resilience for selected stronger developers.

Core views

The report argues that a completed-sales model would materially change the timing and availability of project cash flows. Under the current presale model, developers can receive buyer down payments and mortgage proceeds during construction and may withdraw escrow funds at construction milestones. Under the completed-sales model, sales proceeds would be received only after completion, leaving developers unable to reinvest those proceeds in new land during construction. Goldman Sachs’ project-level comparison therefore shows IRR falling from high-teen to low-twenties percentages under the current presale model to mid-single digits under completed sales; net margin would also fall, while accounts payable and total liabilities-to-assets would decline as cash flows to contractors and suppliers become more constrained and new investment falls. In the current downturn, Goldman Sachs estimates strict implementation could reduce a new project’s IRR from the mid-to-high teens to the mid-single digits, potentially freezing the land market. To restore IRR to 10% or above, it identifies four potential mitigating paths: government base land prices falling by at least 15%; land payments being back-end loaded into year two or three after acquisition; ASP rising by at least 10%; or the construction cycle shortening by one year, for example from three years to two. Even if returns recover, the report expects cash available for land banking to remain substantially lower, leading to a shrinking development-property portfolio across its coverage universe over the next two to three years as current land banks are depleted. The report expects city-level effects to differ. Tier-1 cities have a higher share of secondary-market transactions and a lower completed-project-sales share than lower-tier markets, and Goldman Sachs considers the impact on sales volume, ASP and land competition smallest there. It also notes that mortgage requirements are already tighter in top-tier cities. For the broader market, lower future supply could support an eventual property-price recovery, but the report does not expect the recovery path over the coming one to two years to change much because existing saleable inventory remains high. It believes primary-market sell-through improvement since 2024 has been concentrated in new-generation products rather than vintage inventory. At the industry level, Goldman Sachs estimates that, in the strictest scenario and once current land banks are largely depleted, land sales could fall by two-thirds or more from current levels. This would imply new starts of about 200 million square metres of GFA or less, versus its 2026E and 2027E estimates of 458 million and 435 million square metres, respectively. The report frames this contraction as painful for development returns and growth, but consistent with a healthier long-term industry structure and continued consolidation. For relative positioning, the report identifies higher saleable resources relative to run-rate sales, greater top-tier-city exposure, shorter construction cycles, lower financing cost and leverage, and a significant recurring-income contribution as factors that reduce near-term impact. It views China Overseas Land & Investment’s development-property portfolio as the least affected among covered companies, citing higher saleable resources, a shorter construction cycle, low leverage and financing cost. It also highlights CR Land’s share price as already implying a negative valuation for its development-property business. The sector had corrected 10% after the policy announcement, implying 0.4x 2026 P/B against average ROE of 4%, excluding China Vanke. Goldman Sachs expects near-term share-price volatility until local implementation details become clearer, including land-payment terms, deposit rates and conditions for withdrawing sales proceeds before completion. It has not yet incorporated the new policy into estimates. Nonetheless, it considers valuations depressed, maintains that long-term consolidation remains intact, and retains Buy ratings on CR Land, COLI, Jinmao and Greentown.

Analysis framework

Goldman Sachs compares cash-flow timing, financing and escrow rules across the current presale model, a more regulated presale model and a completed-sales model. It then translates the changes into project IRR, margin, accounts payable and leverage outcomes, tests conditions that could restore returns, compares city-level exposure, assesses developers’ operating and balance-sheet characteristics, and reviews P/B-based valuation implications.

Methodology notes

• Industry AnalysisSupply-demand framework

  Property supply, inventory, sell-through and land-market analysis

  The report links restricted developer cash flows and lower land purchases to fewer future new starts, while explaining that high existing inventory should limit the policy’s effect on price recovery over the next one to two years.

• Valuation methodsPB valuation

  Price-to-book valuation comparison and implied development-property valuation

  Goldman Sachs uses 2026 P/B, ROE comparisons and CR Land’s implied development-property valuation to argue that weaker development returns are already reflected to a meaningful degree in share prices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Overseas Land & Investment (0688.HK)

  Goldman Sachs views its development-property portfolio as the most defensive in its coverage universe under the new policy.

  Strengths

  Higher saleable resources, shorter construction cycle, low leverage and financing cost.

  Comparison

  Viewed as least impacted among covered developers.

  Risks

  Implementation details and the eventual effect on development returns and growth remain uncertain.

• China Resources Land (1109.HK)

  Retained Buy; used as an example of valuation already discounting the development-property business.

  Strengths

  The report says the current share price implies negative valuation for the development-property business.

  Weaknesses

  Development-property return and growth outlook remain uncertain.

  Comparison

  Valuation is presented as depressed despite policy uncertainty.

  Risks

  Near-term share-price volatility until implementation details become clearer.

• China Jinmao Holdings (0817.HK)

  Retained Buy within Goldman Sachs’ China developer coverage.

  Comparison

  Included among developers with Buy ratings.

  Risks

  Exposure to lower project returns and constrained land-banking cash under strict implementation.

• Greentown China Holdings (03900.HK)

  Retained Buy within Goldman Sachs’ China developer coverage.

  Comparison

  Included among developers with Buy ratings.

  Risks

  Exposure to lower project returns and constrained land-banking cash under strict implementation.

Key data

• New-project IRR under strict completed-sales implementationMid-single digitVersus mid-to-high teen levels in the current downturn.
• IRR restoration condition10% or aboveWould require at least one of: base land price down 15% or more, delayed land payments, ASP up 10% or more, or a one-year shorter construction cycle.
• Potential land-sales declineTwo-thirds or moreStrictest scenario after current land banks are largely depleted.
• New starts under strict scenarioAbout 200mn sqm GFA or lessVersus Goldman Sachs 2026E/2027E estimates of 458mn/435mn sqm.
• Sector correction after policy announcement10%Implying 0.4x 2026 P/B against average 4% ROE, excluding China Vanke.

Impact & implications

The report sees a trade-off: strict completed-sales implementation would weaken developers’ near-term project returns, cash available for land banking and future growth, but could accelerate a lower-supply, more consolidated industry. It considers stronger, lower-leverage developers with faster construction and recurring income relatively better positioned, while awaiting city-level policy details before changing estimates.

Risks

• Strict implementation could reduce new-project IRR to the mid-single digits and materially constrain cash available for land banking.
• Local implementation details remain unknown, including land-payment terms, deposit rates and conditions for withdrawing sales proceeds before completion.
• Near-term sector share prices may remain volatile until implementation clarity improves.

What to watch

• City-level implementation details for the “828” policy, particularly land-payment schedules, deposit rules and escrow withdrawal conditions.
• Whether base land prices, land-payment timing, ASPs or construction cycles adjust enough to restore project IRRs to 10% or above.
• The pace of inventory absorption and whether sell-through improvement broadens beyond new-generation products.
• Developers’ remaining land banks, financing costs, leverage and recurring-income contribution as the policy is implemented.