Housing developers face new curbs

Sources from the Ministry of Construction say that a new banking regulation may require land developers to finish projects and sell vacant holdings by keeping track of the funds they raise from pre-sales.

Developers could be required to open special bank accounts that will hold funds from all pre-sales. The money will then be used only to finish the project.

It is a common practice among Chinese developers to sell units in unfinished buildings, but instead of using the money to finish construction work, the proceeds are invested into new projects. This has led to incidents where developers end up abandoning unfinished project because of cash flow problem. Buyers then are left with nothing to show for their investment.

Authorities will also be able to keep better track of apartment sales, ensuring that all of them have been put on the market. Some developers, in a bid to tighten supply and raise property prices, have been accused of hoarding empty units.

And while developers are legally not supposed to pre-sell units in new buildings until the roof is on, it is an open secret that some developers pre-sell under the table.

A senior official from the Ministry of Construction, who spoke off the record, said that the new measure may be tested in Shenzhen this year.

Housing prices in 70 major Chinese cities has risen 5.5 percent on average from 2005, statistics show.