Developers now only need to keep funds in the escrow accounts determined by construction contract costs, reports said, allowing more flexibility for developers to withdraw funds
Shares of Chinese property developers jumped on Friday, following media reports that the sector is gaining easier access to presale proceeds from residential projects – the latest move by authorities to ease the industry’s severe cash crunch.
The Hang Seng Mainland Properties Index added 3.1%, versus a flat main Hang Seng Index.
Notable gainers included Sunac China, which climbed 7.3%, and Shimao Group, which soared 5.7%.
Regulatory curbs on borrowing have driven China’s property sector into a liquidity crisis, highlighted by Evergrande, the world’s most indebted property firm. The contagion has engulfed other developers and contributed to a slump in China’s property market, which accounts for a quarter of its economy.
Cailianshe, an online provider of financial news, said late on Thursday that authorities have issued new rules to correct any ‘over-tightening’ of escrow accounts that had happened at the city or county-level.
Developers now only need to keep funds in the escrow accounts determined by construction contract costs, the report said, allowing more flexibility for developers to withdraw funds.
Chinese developers are allowed to sell residential projects before completing them, but are required to put those funds in escrow accounts. Previously, they could withdraw fund in stages depending on how much they have completed the project.
The cash held in escrow typically accounts for 50% of developers’ pre-sale funds, developers and analysts said.
Citi said in a report an escrow easing would be a much-needed positive polity to ‘heal the pain’ and ‘comfort the spirit’, and it would benefit liquidity of the firms.
The investment bank said there are other positive signs in the sector including state-owned firms buying assets from distressed developers, and their creditors extending debt, but it cautioned improvement in the fundamentals is yet to be seen, as it expected a 30% drop in sales in the first quarter and a 20% decrease in 2021 earnings.
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