Real estate: new measures introduced for stabilize the market in China

     On the evening of February 10, 2022, it was reported from Chinese social media that nationwide measures to supervise and manage commercial housing pre-sale funds (hereinafter referred to as “Measures”) have been recently formulated and promulgated, the real estate industry will bring significant positive results in 2022.

     As is known, there was previously the "Administrative Measures for the Up-sale of Urban Commercial Houses" promulgated in 1994, which stipulated that "specific measures for the supervision of the early sale of commercial houses shall be developed by the property management department" and "the competent construction administrative departments of the provinces and autonomous districts, municipal administrative departments for construction or administrative departments for real estate may formulate detailed implementation rules in accordance with these Measures.”

     The biggest difference between the new "Measures" and the corresponding provisions of the 1994 "Administrative Measures for the Presale of Urban Commercial Houses" is that the provisions for presale funds are now clearly unified across the country's provinces, thus facilitating the regulation of presale use of funds.
     It is reported that now the "measures" clearly stipulate that "pre-sale fund quota supervision is the" key quota supervision "to be approved by the city and county city and rural construction departments according to the project cost contract, etc. . which can provide the quota of funds needed to complete the project. When the account funds reach the supervision limit, the funds in excess of the limit can be withdrawn and freely used by real estate enterprises.”

     In 2021, following threats of default by high-profile real estate companies, some local governments have had problems overseeing presale funds, such as zero allocation of funds. The new Measures will correct this behavior and provide real estate companies with an easier cash flow situation.

    First of all, reasonable capital supervision is needed. Following default threats by housing companies in the second half of last year, some cities tightened oversight of presale funds to ward off risks. Currently, maintaining a moderate liquidity of funds is an important measure to bring the industry out of the crisis.

    In this regard, the Deputy Director of Research at the Index Division of the China Index Research Institute also said that this will play a positive role in easing the current financial pressure on enterprises and improving capital efficiency, which is conducive to protecting the legitimate rights and interests of homebuyers and stabilizing the real estate market. .

    In 2022, the liquidity pressure faced by real estate businesses is still relatively large. In the short term, real estate businesses need to maintain capital liquidity through a variety of means in order for the business to continue operating.

    The implementation of the "measures" will help to prudently manage and control the funds of real estate enterprises, so that liquidity pressures of some real estate enterprises can be alleviated to a certain extent