China drafts rules to give property developers more access to escrow funds to ease industry’s cash crunch, sources say
- Chinese developers are allowed to sell residential projects before completing them but are required to put those funds in escrow accounts
- The cash held in escrow typically accounts for 50 per cent to 70 per cent of developers’ presale funds
China is drafting nationwide rules to make it easier for property developers to access funds from sales still held in escrow accounts in its latest move to ease a severe cash crunch in the sector, four people with knowledge of the matter said.
The new rules would help developers meet debt obligations, pay suppliers and finance operations by letting them use the funds in escrow that are currently controlled by municipal governments with no central oversight, the people said on condition of anonymity due to sensitivity of the matter.
“An abrupt clampdown on escrow accounts by local authorities after Evergrande’s crash choked liquidity for some good quality names. A correction by the central government is much needed,” said Li Nan, associate professor of finance at Shanghai Jiao Tong University.
Chinese developers are allowed to sell residential projects before completing them but are required to put those funds in escrow accounts.
The cash held in escrow typically accounts for 50 per cent to 70 per cent of developers’ presale funds, one of the people said, without giving an estimate on the amount held.
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Guided by the cabinet-level Financial stability and Development Committee, the sector’s main regulator the Ministry of Housing and Urban-Rural Development and other authorities are drafting the new rules, three of the people said.
