What new rules are China drafting for property developer escrow funds?

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China is drafting new nationwide rules to ease access to property developer escrow funds.

China is developing new national regulations designed to simplify how property developers can access funds held in escrow accounts. These measures aim to alleviate the severe liquidity crisis affecting the real estate sector by allowing developers to utilise pre-sale proceeds more flexibly to meet financial obligations, pay suppliers, and sustain ongoing operations. The proposed rules are expected to be rolled out as early as the end of January, with the Ministry of Housing and Urban-Rural Development and other authorities leading the drafting process under the guidance of the Financial Stability and Development Committee.
Access to Pre-Sale Funds to Be Streamlined

Developers in China are typically required to place funds generated from the pre-sale of residential projects into escrow accounts. These funds commonly represent between 50 per cent and 70 per cent of a developer's total pre-sale revenue. The new regulations are intended to provide developers with greater access to these funds, which have often been restricted by municipal governments without a unified national framework.
Prioritising Project Completion and Debt Repayment

A primary objective of the proposed rules is to enable developers to utilise escrow funds to ensure the completion of unfinished construction projects. Following project completion, these funds could then be allocated for other necessary purposes. Furthermore, the regulations are expected to prioritise the repayment of onshore debt for developers possessing stronger credit profiles, thereby aiming to stabilise financially sound entities within the sector.
Addressing Liquidity Issues Post-Evergrande

The move to reform escrow account management follows concerns that arose after the financial difficulties of China Evergrande Group. In 2021, many local governments imposed tighter controls on withdrawals from these accounts, fearing a wider contagion effect. This led to a significant liquidity crunch for some developers and left numerous projects incomplete, exacerbating cash flow problems. The central government's intervention seeks to correct what is seen by some as an overly restrictive approach by local authorities that has impacted even financially stable companies.
Broader Efforts to Stabilise the Property Sector

These new rules are part of a broader set of initiatives by Beijing to restore stability to the property market, which accounts for approximately a quarter of China's economy. Recent steps have included facilitating the acquisition of distressed assets from indebted private firms by state-backed developers. Officials from the People's Bank of China have also indicated a commitment to maintaining consistent and stable property financial policies, suggesting that property sales and financing are gradually returning to normal and market expectations are improving.

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What new rules are China drafting for property developer escrow funds?

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