New Rules on Pre-sale Funds Expected to Relieve Pressure on Chinese Cash-strapped Real Estate Companies

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Chinese regulators have reportedly issued new rules on pre-sale funds for commercial housing which are expected to alleviate the pressure on cash-strapped real estate companies in the wake of the Evergrande Group debt debacle.

A report from Securities Daily on 10 February cited sources stating that nationwide commercial housing pre-sale fund regulatory measures were recently drafted and released by authorities, in a move which will “bring substantive benefit to the real estate sector.”

According to sources the new measures differ from the 1994 “Municipal Commercial Housing Pre-sale Administrative Measures” (城市商品房预售管理办法) in providing nationwide unification of rules governing pre-sale funds, serving to standardise their usage.

The 1994 measures stipulated that province-level governments were allowed to formulate their own by-laws in accordance with the provisions of the measures.

The new measures stipulate that pre-sale funds quota management is a “key area” for supervision and verification by municipal and county-level construction authorities, to ensure that construction projects have adequate funds for completion.

A source said to Securities Daily that the move will help relieve the pressure on leveraged real estate concerns in the wake of the Evergrande debt scandal.

“In actuality, following the default of certain renowned real estate enterprises, some local governments have engaged in excessive regulation of pre-sale funds,” said the source.

“The new directive will help to correct this behaviour, and be of benefit to alleviating the fund flows for some real estate enterprises facing challenges.”