HONG KONG/SHANGHAI -- Not long ago, heavyweight Chinese property developers would have battled each other fiercely for a prime site like the grounds of Shanghai's former wholesale seafood market.

The 11.9-hectare plot is in a busy section of China's biggest city and abuts the historic Zhenru Temple. The area features good train access and what veteran real estate executive Ding Zuyu calls "a mature commercial and business atmosphere" and "scarce location value." When the site went up for auction on Aug. 31, just ahead of China's annual peak homebuying season, it fetched 15.02 billion yuan ($2.24 billion) -- the highest sum of any Shanghai land sale this year. But the winning bid, made by state-owned China Overseas Land & Investment, was the only one city officials received and just matched the reserve price they had set beforehand.

The auction, held three days after Beijing officials announced sweeping changes to rules governing the sale of new homes and the financing of real estate development, underscores how much the country's property sector, previously the single biggest driver of domestic economic activity, has been tamed.

Following a wrenching market correction touched off by policy measures to take the heat out of the country's debt-fueled speculative real estate investment boom, property development is increasingly dominated by state-owned companies like China Overseas Land that can readily turn to state-owned banks for financial support.

China Evergrande Group founder Xu Jiayin was sentenced on Aug. 20 to life in prison on charges of fraud and bribery: With the company's downfall, more than 1.5 million presold homes were left unfinished.

While the recent measures are not expected to spark a market revival or mollify rattled consumers, they do appear to be setting a course for the property industry's future as the economic and financial turmoil of the last few years winds down in line with President Xi Jinping's admonition that "homes are for living in, not for speculation." Indeed, Citigroup analyst Griffin Chan has hailed the new policies as "the third revolution in China property" following previous reforms in 1998 and 2002.

The biggest change is that developers will now be allowed to begin selling units only after a building's structure is completed rather than starting as early as upon the laying of the foundation.

This is intended in part to remove the risk of homeowners being left virtually empty-handed in the event their builder runs into financial difficulty before finishing construction. The collapse of large private developers like China Evergrande Group beginning in 2021 left millions of buyers stuck with unfinished apartments, sparking protests in pockets of the country. At the peak of China's property boom, as much as 95% of new homes were sold in advance of construction.

This presales model played a significant role in fueling the country's property bubble, according to analysts.

"First, it gave developers cheap, loosely regulated financing, fueling rapid expansion and over-construction," Julian Evans-Pritchard, head of China economics at Capital Economics, wrote in a client note. "Second, it amplified financial risks: some developers used presale revenues from new projects to cover shortfalls on existing ones." Residential construction in Shanghai on Sept. 23: Analysts predict that housing starts could decline steeply in 2027.

Indeed, when the market was at its hottest, money from customer deposits, prepayments and mortgage payouts accounted for a majority of developers' funding. Now, even the mortgage payouts will come later as the August measures require delaying the transfer of funds until construction is complete and the holding of customer funds in escrow. But financial regulators have also announced measures to improve developers' access to funding from the capital markets.

The August measures also extend the maximum mortgage term to 40 years from 30 to make monthly payments more affordable. On Tuesday, the Ministry of Finance followed this up by announcing a mortgage loan interest subsidy for first-time homebuyers.

But how much demand exists for longer mortgages is unclear. Some data suggests Chinese consumers now prefer to avoid debt and pay with cash if possible. According to Beike Research Institute, one in four secondary home sales in Shenzhen in the first half of the year involved no mortgage, up from around one in six two years ago.

Although it will take time for local authorities to implement the recent measures, some analysts see signs of improved market sentiment already. According to Citi's Chan, new home sales were 26% higher in 34 cities in the first two weeks of September than in the same period last year.

The high end of the market seems most robust. In late July, 100 units at luxury development Anlan Shanghai, a project involving China Overseas Land, China Merchants Shekou and other state companies, sold out within 30 minutes at prices ranging from 24 million to 42 million yuan, according to local media. Home prices in emerging technology hubs like Suzhou and Hefei are also showing signs of firming.

"We have this K-shaped economy where the top notch of wealthy people continue to get wealthier," said Alvin Huang, property research analyst at CITIC CLSA in Hong Kong.

100 units at Anlan Shanghai, a luxury development involving China Overseas Land and China Merchants Shekou, sold out within 30 minutes at prices ranging from 24 to 42 million yuan in July.

Few analysts expect the recent measures to provide a lasting lift to sales or prices of new homes. Hainan province in southern China preemptively began restricting presales in 2020, but Capital Economics' Evans-Pritchard noted that its housing prices have largely fallen in line with the rest of the country.

In many places, buyers are shifting toward the secondary market. In the first half of 2026, the floor space of existing homes changing hands in China exceeded that of new homes for the first time, according to National Bureau of Statistics (NBS) figures. In Shanghai, nearly four times as much existing residential floor space was bought in the first eight months of the year as new home floor space, per data from China Real Estate Information.

"There are still many homeowners who come to us looking to sell their properties," said an agent who focuses on high-end homes in Shanghai's Xuhui district. Noting that home prices in the area have fallen by 10% to 20% over the past year, she added, "It is a buyers' market because inventory has increased." A model property development on display in Guangzhou on Aug. 29: Homebuyers are increasingly favoring the secondary market over new developments.

Given this environment and the new strictures, analysts expect property development to slow further, adding to the 19.9% decline in real estate investment seen in the first eight months of 2026.

Citi's Chan projects that housing starts and new unit sales will decline by 30% in 2027 and 2028. In lieu of prefunding from customers, he calculates that property companies may need to invest 70% to 120% more of their own capital to maintain their previous pace of development.

This situation will favor state-owned companies. "Developers will turn to loan and bond financing to fill the gap, and both of those sources favor state-owned developers," wrote Xiaoxi Zhang, a Chinese finance analyst for research company Gavekal Dragonomics, in a client note. "Their government backing allows them to borrow at lower interest rates, which in a capital-intensive business provides a meaningful advantage. ... More private-sector developers will exit the market." Last month, China Overseas Land won the bidding for a prime site auctioned in Shenzhen. This time, the bidding lasted 257 rounds as six other state-linked developers vied for the plot, which ultimately went for 2.55 billion yuan, 125% above the initial asking price.

In general, though, tighter funding is forcing developers to go slow on expanding their land banks "Property developers are adopting a more cautious approach to land acquisition, in order to preserve room for pricing and profit margins for completed-home sales," said Zhang Wenjing, an analyst at China Index Academy, a real estate data provider.

The new headquarters of China Merchants Shekou under construction in Shenzhen on June 23: The state-owned developer has become one of the country's largest as private rivals have fallen into insolvency.

© Getty Images This is problematic for local governments, which previously depended on land sales and other development-related revenue for as much as 37% of their income. According to China Index Academy, the average premium paid in land auctions across 300 cities has almost halved since the August measures were announced.

"We now expect land sales revenue to fall by 30% or more this year, much faster than the 17% annualized decline during 2022-25," Goldman Sachs economist Lisheng Wang wrote in a note last month. "We believe the downturn will likely extend into 2027 or beyond, with revenue ultimately falling 80-90% from its mid-2021 peak." The subdued pace of development will have important economic repercussions. In 2020, real estate and construction alone accounted for a quarter of economic growth, according to NBS figures. Goldman Sachs has calculated that the property market crash took around 2 percentage points off China's gross domestic product growth in 2024 and 2025.

These effects may now be beginning to taper off, but there is little sign of property development returning as a driver of growth, even as Beijing looks to revive economic momentum On the one hand, many cities still have surpluses of unsold properties. On the other, for many consumers, housing is no longer an attractive financial investment. Rising property prices previously made Chinese consumers confident about spending on other things. With prices still stagnating in much of the country, consumers are in little mood to splurge.

"Eventually, prices will reach a new equilibrium and stop falling," Evans-Pritchard said. "But we think that process will take at least a couple more years."