On April 14, the first financial reporter confirmed from multiple channels that recently, Nanjing housing security and real estate bureau and Nanjing Branch of the people’s Bank of China jointly issued the notice on the pilot use of bank guarantee for the supervision of commercial housing pre-sale funds (hereinafter referred to as the notice), which relaxed the access to pre-sale funds to a certain extent.
The notice points out that real estate development enterprises can replace the supervision funds in the supervision account of pre-sale funds of new commercial houses in the same amount with the letter of guarantee issued by the bank. At the same time, “after the development enterprise applies for the replacement of the equivalent capital guarantee, the balance within the supervision limit of the pre-sale capital account must meet the construction capital demand of the project in the next one year; and the replacement capital of the guarantee shall not exceed 60% of the supervision limit of the project pre-sale capital.”
The notice also puts forward requirements for enterprise qualification. “Within two years before the date of applying for the use of the letter of guarantee, the development enterprise has not received administrative punishment for the illegal use of commercial housing pre-sale supervision funds in our city. The commercial housing project to be applied for shall be free of judicial freezing, illegal fund deduction, arrears of project funds and wages of migrant workers.”
It is worth mentioning that the notice stipulates that the purpose of the replacement funds of the letter of guarantee shall be determined by the regulatory authority, which is mainly limited to the reasonable capital flow of the development enterprises in Nanjing.
The notice shows that it will be issued on April 11. The relevant staff of a District Housing Administration Bureau in Nanjing said that it has not been implemented yet, and the specific details are still under study. At the same time, it is only open to some pilot enterprises.
Insiders of an East China real estate enterprise said that the new regulation in Nanjing means that qualified enterprises can put forward regulatory funds in the form of letter of guarantee, which is indeed a way to relax regulatory funds.
Yu Xiaoyu, research director of Yihan think tank, told China first finance and economics, “it is expected that more cities will correct the ‘non-standard’ supervision of pre-sale funds under the condition of ensuring completion and delivery, make appropriate adjustments if it is too strict, and regulate if it is too loose.”
However, some real estate enterprises are not optimistic about this. The above-mentioned real estate enterprises also stressed that “only qualified enterprises can use it, which is actually a kind of bank credit enhancement.” Some market participants of a top30 real estate enterprise believe that “this policy is good, but for banks, if private enterprises have the risk of debt default, banks should be responsible for revealing the bottom.”
In addition, according to the analysis of people in the real estate industry in Nanjing, this new regulation is mainly to alleviate the shortage of funds of developers. “The impact of the epidemic in Nanjing in the first quarter is relatively large, most of the projects opened are not sold well, and the collection of real estate enterprises is not much”, which is also conducive to the first round of centralized land supply in Nanjing. It is understood that the first round of Nanjing will focus on the supply of 20 plots, including 19 residential plots and 1 commercial plot, with a total starting price of about 26.723 billion yuan and a total ceiling price of 30.356 billion yuan.
This is the first time since the introduction of the national measures for the supervision and administration of pre-sale funds of commercial housing in February that some places have given relatively clear relaxation provisions. Previously, the provisions of “Article 19 of Zhengzhou” on “providing government service level and facilitating transactions” also mentioned that real estate development enterprises offset the pre-sale regulatory funds not higher than the guarantee amount with bank guarantee and third-party guarantee, but there are no more detailed provisions.
In mid February, the national measures for the supervision and management of pre-sale funds of commercial housing had been formulated and promulgated, and it was clear that the supervision of pre-sale funds was “key quota supervision”. The amount of funds required for the completion of the project can be ensured by the municipal and county-level urban and rural construction departments according to the project cost contract. When the funds in the account reach the regulatory limit, the funds exceeding the limit can be withdrawn and used freely by the real estate enterprises.
“But in fact, there are still stricter policies on the supervision of pre-sale funds, such as Fuzhou and Xiamen. It is rare to see cities with real relaxed policies.” Yihan think tank said.
For example, Haikou issued a notice on February 24 that it is necessary to further strengthen the supervision of pre-sale funds and standardize the behavior of development enterprises and regulatory banks, which emphasizes that all house funds should be directly deposited into the regulatory account; In mid March, Changsha also issued a notice to upgrade the pre-sale fund supervision system of new commercial housing in five districts of Changsha, including deposit, down payment, mortgage, installment payment, provident fund loan and other pre-sale funds of new commercial housing, which must be fully deposited into the special account for pre-sale fund supervision.
The strict supervision of pre-sale funds began in the second half of 2021. Individual real estate enterprises fell into a liquidity crisis. All localities have greatly strengthened the supervision of pre-sale funds at the actual implementation level. Many cities have begun to “implement policies due to enterprises” and take particularly strict pre-sale funds supervision measures for real estate enterprises with high leverage and weak credit qualification.
Zheshang Securities Co.Ltd(601878) research report shows that regulatory funds are divided into key regulatory funds and general regulatory funds: key regulatory funds are used to ensure the normal progress of project construction, which are generally extracted based on the project cost or pre-sale funds multiplied by a certain proportion. The general regulatory funds (if there are development loans and mortgage loans, they are supervised by banks and financial institutions) refer to the regulatory funds beyond the amount of key regulatory funds. Real estate enterprises can withdraw them according to the regulations of each city, but they should give priority to the construction of regulatory projects or the repayment of development loans.
“Before, many real estate enterprises took away the money in the pre-sale fund supervision account and left no project funds,” a bond investor familiar with the real estate industry told China first finance and economics. After the local governments strengthened supervision in 2021, some local governments were more strict and would require the amount of funds in the account to be higher than that required in the later stage of the project.
This makes the use of pre-sale funds by real estate enterprises experience a process from “can be used arbitrarily” to “can not be used”.
“In fact, it is similar to the sudden switch from pre-sale system to existing house sales, which is essentially a one-time liquidity impact.” The Pacific Securities Co.Ltd(601099) securities research report pointed out that “if the real estate enterprises can persist until the roof of the house under construction is completed, the funds in the pre-sale fund supervision account can be withdrawn (but the development loan or non-standard loan on the project must be repaid first, and the remaining funds can be collected to the group headquarters).”
As a result, the funds of many real estate enterprises are precipitated in the project and cannot be accessed, and the funds returned to the group level are greatly reduced.
Now, with the gradual deregulation of pre-sale capital supervision, the easing of liquidity pressure on real estate enterprises is undoubtedly a good thing.
“The supervision of pre-sale funds does not engage in ‘one size fits all’. Due to the implementation of policies by enterprises, it is a general trend to shorten the time limit for withdrawal approval, refine and differentiate the supervision of pre-sale funds.” Yu Xiaoyu judged that this is good for the steady operation of real estate enterprises, especially private enterprises, to alleviate the financial pressure of enterprises, and it is also one of the main ways to solve the financial dilemma of enterprises, so as to normalize the business.
