Beijing considers more curbs on developers

Access to down payments may be controlled

Peggy Sito
07 May 2010

Beijing is reportedly considering restricting down payments to developers for uncompleted flats in the latest measure to regulate the sizzling housing market.

Down payments and money from mortgages for unfinished flats will be placed in a special account to be overseen by the government, according to the China Securities Journal.

The government will allow developers to access the account and use the money in accordance with their capital needs for construction of developments, the newspaper quoted an unidentified source as saying.

Pre-sale proceeds will only be allowed to be freely used by developers when the projects are completed and delivered. The proposal is being discussed by the Ministry of Housing and Urban-Rural Development, the People’s Bank of China and the China Banking Regulatory Commission, the report said.

Developers, which said they had not heard of the proposal, complained it would deal a blow to their cash flow if they were not allowed to freely use the pre-sale proceeds.

“Pre-sale proceeds account for 30 to 50 per cent of many developers’ annual revenue,” said Feng Huiming, executive director of the Fantasia Holdings Group. Feng said some small developers could go out of business, describing it as a very tough measure if it became a reality.

Liang Youpan, general manager of Guangzhou City Construction & Development Property Holdings, said developers could see several months of delays in receiving sales proceeds under the proposal, with small cash-strapped companies particularly hard hit.

Analysts said the proposal was aimed at stopping developers using pre-sale proceeds to buy land sites, leading to an increase in land prices.

The reported proposal is the latest in a string of policy moves by the government since April to curb speculation in the property sector.

Last month, the central government issued a series of measures targeting development progress and pre-sale arrangements by developers. Developers were banned from receiving deposits from prospective buyers of uncompleted homes before getting official approval.

Under the new rules, once the government has granted the green light to developers, they must publish the price of each unit available for pre-sale within 10 days. The move was aimed at restricting developers from pushing up prices before the official launch of a property.

On Wednesday, the influential Chinese Academy of Social Sciences suggested that developers who hoard properties to create a false impression of a supply shortage and then push up prices should be fined.

Feng of Fantasia said the series of measures were tougher than he expected. He originally believed the central government would not issue serious cooling measures as property was a pillar industry and an engine to drive the recovering economy.

“The entire economy will be hit if the property market collapses,” he warned.

The austerity measures have slowed sales activity in many cities. Evergrande Real Estate Group said it decided to cut prices for its 40 property developments nationwide by 15 per cent from yesterday.

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