(Yicai Global) July 15 — Xi’an, the provincial capital of China’s Shaanxi province, has taken the lead in introducing a series of regulatory measures to prevent delays in the delivery of commercial properties and strengthen the supervision on the use of pre-sale funds of commercial properties.
The pre-sale funds of commercial properties, including deposits, down payments, and home purchase loans, shall be all poured into a special supervisory account, so developers cannot directly collect or set up other accounts to access buyers’ money, according to a document issued by the Xi’an Housing and Urban-Rural Development Department late yesterday.
The move comes after home buyers in around 150 projects across 20 provincial-level regions banded together to demand that developers complete construction on time and that the houses are delivered within a reasonable period, otherwise they will all stop repaying their bank loans, which involves mortgages of around CNY2 trillion (USD300 billion).
Xi’an reacted first
Xi’an is the first Chinese city to issue a policy in response to the recent trend of buyers of unfinished houses to stop repaying mortgages, Yan Yuejin, director of the think tank center of the Shanghai Yiju Real Estate Research Institute, told Yicai Global.
Xi’an will require the authorities of each district to supervise the whole process of the property development projects, the document noted. If developers fail to deliver houses on schedule, their credit rating will be downgraded and made public. If there are irregularities in the construction leading to the failure to deliver houses, the relevant firms and personnel will be held legally responsible, it added.
Moreover, the People’s Bank of China Xi’an Branch will be responsible for guiding commercial banks to manage the supervisory accounts. If commercial banks allocate pre-sale funds to developers without permission, they will be responsible for recovering the money, the document said, adding that if the banks cannot recover the funds, they will be liable for compensation.
Misappropriation of funds by Developers
The misappropriation of pre-sale funds by developers is the main reason behind the unfinished projects. In June, authorities in Weiyang district, Xi’an, announced that the construction of a local property had been halted because of the misappropriation of CNY1.1 billion (USD162.8 million) worth of pre-sale funds by indebted Chinese property developer Shimao Group Holdings.
Since the second half of last year, China has been tightening the financing environment of the real estate sector, with many companies facing problems related to their capital chains.
Editors: Dou Shicong, Futura Costaglione