(Yicai Global) Feb. 21 -- China has initiated a pilot program to boost private investment in the real estate sector and help property developers reduce their debts and leverage ratios, replenish liquidity, and put idle assets into better use.

Private funds with at least CNY5 billion (USD728.4 million) of investment principal under management or that have managed no less than CNY10 billion (USD1.5 billion) of investment principal since their establishment can take part in the pilot scheme and invest in the commercial properties, residential housing, and infrastructure projects within the scope, the China Securities Regulatory Commission said in a notice yesterday.

The main contributors and actual controllers of the above private funds should not be real estate developers or related parties, according to the pilot program. The funds must also not have been involved in major law violations in the past three years.

The pilot scheme mobilizes private funds to acquire real estate assets that will not likely be sold in the short term, supporting the whole industry, the person in charge of the market department at the CSRC told Yicai Global.

The funds must raise at least CNY30 million (USD4.5 million) in the first paid-in capital financing round, mostly from institutional investors, each of which should contribute no less than CNY10 million, per the pilot plan. Individual investors should contribute no more than 20 percent of the total paid-in capital.

The CSRC also encouraged foreign investors to participate in the pivot thorough the Qualified Foreign Limited Partnership program.

Before the pilot scheme, private funds could issue shareholder loans of no more than 20 percent of the paid-up amount after investing in the real estate companies, the CSRC staffer added.

But with the pilot program, funds with individual investors can provide loans of up to two-thirds of the paid-up amount, while those with only institutional investors can determine the ratio based on fund contracts.

Institutional investors like insurance firms have a relatively great interest in the pilot scheme, the CSRC insider said, citing the results of a survey. Based on the implementation of the pilot program, the regulator will draw conclusions to improve policies and regulations that support private funds’ products.

Editor: Futura Costaglione