(Yicai Global) Nov. 15 -- Chinese regulators are slackening supervision of downpayments made for pre-sold houses, that have yet to be completed, to allow developers to pay off the construction costs and other debts connected to the project and diffuse risks from distressed property firms.

Real estate companies with a good record can apply to banks for a letter of guarantee to withdraw some of the funds paid by home buyers for houses that are still under construction for specific purposes, according to a notice issued by the People’s Bank of China, the China Banking and Insurance Regulatory Commission and the Ministry of Housing and Urban-Rural Development yesterday.

The amount of money that can be withdrawn, the purpose for which it can be used, how long it can be used for, the qualifications needed by developers to be considered eligible and the banks that can issue such guarantees, were all laid out in the document. It is part of a slew of new measures that regulators issued yesterday to boost financial support to the nation’s stricken real estate sector.

Property developers must use the money to finish building pre-sold housing and pay off any debts on the project, but the funds must not be used to buy more land, make new investments or repay loans from shareholders, the document said.

The new rules mean regulators are being more flexible in how they monitor payments made for pre-sold houses and they will not have an adverse impact on the prompt delivery of pre-sold homes, Wang Qing, chief macro analyst with Golden Credit Rating International, told Yicai Global.

Banks must be prudent in issuing such a letter of guarantee and should ask real estate firms to take any necessary credit enhancement actions to prevent risks, said Dong Ximiao, chief researcher of CMB-China Unicom Consumption Finance.

China’s pre-sales system has come under intense scrutiny in recent months after flawed supervision meant that many developers squandered the monies that people paid for their homes on other things, leaving them with nothing left to complete the projects.

Since last year, China has stepped up regulations on the use of pre-sales funds, such as by strictly controlling the withdrawal of money, but these measures have made life more difficult for real estate companies, industry insiders said.

“The previous strict regulations on payments made for pre-sold houses helped ensure on-time delivery in the short term but greatly impacted the repayment of due debts, thus limiting developers’ financing activities and adversely affecting the handover of pre-sold houses,” Wang said.

Editor: Kim Taylor