China should establish a real estate advance fund to support developers, says former central bank chief By: Reuters

BEIJING (Reuters) – China should set up a fund using pre-sale proceeds from housing projects to support real estate developers’ liquidity and ensure the completion of construction projects, state media said on Thursday. The report cited Yi Gang, the governor of the central bank, as saying.

In China, developers are allowed to sell housing projects before completion, but must deposit pre-sale funds into an escrow account. Local governments allow developers to withdraw some of these funds depending on the progress of construction.

But as defaults ripple through the industry, many local governments are holding back developers due to pressure to ensure housing is completed, and developers are running out of cash.

State media quoted Mr. Yi, vice chairman of the Economic Committee of the People’s Party of China, as saying, “To solve the liquidity problem, we need sustained and stable management support for most real estate enterprises, especially top private real estate enterprises. We need to focus on that.” The Political Consultative Conference (CPPCC) said.

Yi told the annual general meeting of China’s top political advisory body, the Political Consultative Association, that China should help developers complete housing construction and deliver it to buyers on time.

Yi suggested that the government or central bank could withdraw about 1% of the escrow funds, or an estimated 10 billion yuan, and inject it into the fund each year. This could initially be implemented for the next three years, Yi added.

Mr Yee said developers could access the fund to ensure home delivery or compensate stakeholders if some projects were left unfinished.

Additionally, to alleviate liquidity stress, developers should be allowed access to a certain percentage of escrow presale funds in accordance with the law. Yi said it is estimated that 1 trillion yuan of the escrow proceeds will be available for immediate use by developers.

That would allow developers to overcome some hurdles and transition to a sales model that primarily sells existing homes over the next three years, Yi said.