Zhengzhou announced 10 bn yuan real estate fund after wide-spreading mortgage boycott crisis

 

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The city of Zhengzhou, capital of Central China’s Henan province, has announced a real estate fund worth up to 10 billion yuan ($1.47 billion), becoming the first Chinese city to set up such fund after homebuyers across a number of Chinese cities have refused to make mortgage payments for unfinished projects.

Zhengzhou’s real estate fund will be set up and operated under the guide of the government and follow the market oriented operations, the local authority said. The Zhengzhou National Central City Fund which operated by the Zhengzhou finance bureau will set up a bailout fund with the scale of 10 billion yuan as a parent fund. 

A sub-fund will be set up with 30% originating from the parent fund and 70% of the fund from city and district level state-owned enterprises and social capital including construction companies, asset management companies and financial institutions, according to the plan.

Zhengzhou’s solution to solve the problem of projects shutdown and loan suspension has a positive role in solving the problem of”rotten-tail building” in Zhengzhou and is also an example for other cities across the country to explore the solution to the plight of real estate enterprises, said Yan Yuejin, research director at Shanghai-based E-house China R&D Institute.

“Such funds have a very good leverage effect,” Yan said.

He noted that the funding gap of some key projects in Zhengzhou is about 1.5 billion per project and in accordance with the operating mode of the parent and sub-funds such gap can be filled with only 180 million yuan from the parent fund.

The operation of such scheme has pulled all kinds of social funds, especially  from asset management and commercial banks, which will objectively enhance the financial capacity to solve the problem, Yan said.

The Politiburo, the top decision-making body of the China Communist Party, said at a meeting on July 28 that efforts should be made to stabilize the housing market and local governments are held accountable, ensuring house deliveries and people’s wellbeing.

In addition to Zhengzhou, many Chinese cities have been experimenting with new models to address the difficulties of real estate companies as well as legal rights of home buyers.

For example, in Xi’an, Northwest China’s Shaanxi Province has ordered commercial housing pre-sale funds to be directly deposited into the special supervision account for inspection.

Local governments in Xianyang, Northwest China’s Shaanxi Province and Pingdingshan in Central China’s Henan Province have set up a customized work group to address the suspension of projects and loans based on a one-project, one-solution principle.