(Yicai Global) April 15 -- Nanjing has become the first Chinese municipality to set a ratio specifying the amount of funds gained through property pre-sales that developers can touch to help mitigate the sector’s credit crunch.

Qualified developers can freely spend 60 percent of the funds needed to finished the project, which is raised through pre-sales of the project before construction is completed, the Nanjing Housing Security and Real Estate Bureau and the Nanjing branch of the People’s Bank of China said in a document released on April 11.

Last year, regulators started to tighten oversight of how real estate developers use the money raised through pre-sales, after an increasing number quickly spent the proceeds, leaving them unable to complete the projects. Some regions even required developers to put aside 100 percent of the funds needed to finish construction, a bond investor told Yicai Global.

However, as the real estate sector faces mounting liquidity pressures, these policies started to be eased in February this year and the capital of eastern Jiangsu province is the first major Chinese city to specify the ratio of usable funds in pre-sales accounts.

The new policy means that qualified developers can withdraw a portion of funds that are under regulation to spend on things other than the project at hand by providing a letter of guarantee from the bank, a market insider said.

“Nanjing was greatly impacted by Covid-19 in the first quarter and many of the real estate projects that started pre-sales did not do well, so developers did not get much money back,” a developer based in Nanjing said. The new ruling will greatly ease financial tensions in the sector, he added.

It will also encourage developers to be more active in the city’s first round of centralized land sales this year, the market insider said. Nanjing is expected to put 20 plots of land up for auction soon, with a combined starting price of CNY26.7 billion (USD4.2 billion).

“More refined and differentiated regulation targeting the earnings of property presales will become a general trend,” said Yu Xiaoyu, research director of real estate consultancy company EH Consulting. “This will be of benefit to the developers that are steadily operating, especially the private ones, and can ease the pressure on funds.”

This policy has not yet been executed as the details are still being worked out and it is only likely to be applicable to some eligible firms, an official at a district housing security and real estate bureau told Yicai Global.

Editors: Tang Shihua, Kim Taylor