China Real Estate: New Nationwide Escrow Policy for Pre-Sales Accounts
In February, China rolled out a nationwide policy for escrow pre-sales accounts as reported — while details are lacking, some of the mooted new measures are expected to ease the short-term liquidity pressure for Chinese real estate developers by standardising pre-sales escrow account supervisory practices and improving the flexibility of the use of pre-sales funds. In this update, Reorg highlights and compares the relevant regulatory constraints in China’s top 10 cities by GDP that affect a real estate development’s working capital intensity and therefore its developer’s liquidity.
Background, Existing Policies
Chinese real estate developers are required to deposit pre-sales proceeds from end buyers into separate escrow accounts and the usage of which tends to be limited depending on construction progress. On developers’ balance sheets, restricted cash as a proportion of end buyers’ advances has been in the high teens:
Source: Reorg Estimates
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