China lets developers access pre-sale funds to ease cash crunch

CHINA gave embattled real-estate developers a boost Monday (Nov 14) by allowing them access to more money held in pre-sale accounts, the biggest source of funds for the cash-strapped builders. 

China will give “quality” property developers access to as much as 30 per cent of the pre-sale funds with letters of guarantee from banks, according to a statement posted on the banking and insurance regulator’s website. The funds are money that home buyers have paid to developers in advance of their property being built, and is generally held in an escrow account.  

The economy has slowed drastically this year, as the more than year-long housing slump and the Covid Zero policy have weighed on business activity and private consumption. In the past week, policymakers have taken clear steps to try to reduce the economic burden of Covid restrictions and to rescue the property market, in a strong sign that the government is turning its attention toward shoring up the world’s second-largest economy. 

Funds which are withdrawn shouldn’t be used to buy land, make new investments or repay money borrowed from shareholders, the statement said. The money should primarily be used to pay for construction of projects and to repay due debts for specific projects. 

“The policy, while taken at face value, is positive but I would say the effect is probably limited as only developers that are better off are more likely to get the banks’ consent to access pre-sale funds,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s still going to be voluntary rather than mandatory for the banks.” BLOOMBERG