(Yicai Global) July 21 -- Local governments in China are stepping in to help cash-strapped real estate developers after homeowners began refusing to pay mortgages on unfinished properties.

Henan province, where the unfinished property situation is severe, is seeking to reboot incomplete and stalled housing projects with state funds. On July 19, Henan Asset Management announced it had reached a deal with Zhengzhou Real Estate Group for the government-backed pair to jointly set up a bailout fund to help struggling builders.

The move came after home buyers in about 150 real estate projects across 20 provincial-level regions in China demanded developers complete new builds on time and that the apartments are delivered within a reasonable timeframe, otherwise they will stop paying mortgages that total about CNY2 trillion (USD296 billion).

Asset management firms co-founding bailout funds is a necessary step and likely to become an important way to resolve risks in the real estate market, Yan Yuejin, research director at the think tank of E-House China Research and Development Institute, told Yicai Global.

Xi’an, the capital of Shaanxi province, took the lead in coming out with measures to prevent delays in the delivery of new homes and stiffen oversight of presale funds. On July 15, its housing department ordained that presale funds, including deposits, down payments, and mortgage monies, need to be deposited in special escrow accounts, and developers should not directly collect or set up other accounts to access them.

Some local government are also calling in developers, urging them to resume projects. Building work on a housing project by Kaisa Group Holdings in the high-tech development zone of Chongqing has been stalled for nearly a year, the area’s construction bureau said recently, adding that the developer is liquidating debts it owes the contractor and supplier and is in talks with them about solutions.

Another housing project in Xi’an has restarted, with the developer Kangqiao Group vowing to the local authority and buyers that work will be completed by the end of November, one of the homeowners told Yicai Global.

Kangqiao embezzled the homeowners’ pre-paid funds, the project ran out of money, and construction stopped. The buyers complained that the properties were scheduled to be handed over last November, but still have not been.

Editor: Dou Shicong