A new banking regulation may force land developers to finish projects and sell vacant holdings by keeping track of the funds they raise from pre-sales, say sources with the Ministry of Construction.

Under the proposed rule, developers would be required to open special bank accounts where funds from all pre-sales must be deposited. These funds would then only be used to finish the project.

Many Chinese realtors sell units in their unfinished buildings but instead of using the funds to complete construction they plough them into new projects. This has caused some developers to suffer serious cash flow problems, forcing them to abandon unfinished buildings and leave purchasers with nothing to show for their investments.

The new measure will also allow authorities to track the sale of apartments, ensuring that all of them have been put on the market. Some developers have been accused of hoarding empty units in order to tighten supply and force prices up.

Developers are currently not allowed to pre-sell units in new buildings until the roof is on. The authorities know that a large number of realtors ignore the rule and pre-sell under the table.

"Currently it's hard to track and enforcement costs are high," bank sources said. "The new measure is likely to be more effective since authorities can monitor or even direct where the pre-sale funds go."

A senior official with the Ministry of Construction said on condition of anonymity the measure may be tested in Shenzhen this year.

The National Bureau of Statistics reports that the vacancy rate in the commercial property sector surged 13.1 percent year-on-year to reach 121.69 million square meters of floor space during the first eight months of 2006.

The vacancy rate for residential property increased by 11 percent in the same period to reach 66.44 million square meters, it said.

According to official data, housing prices in 70 major cities in China have risen 5.5 percent on average since 2005.

(Xinhua News Agency March 28, 2007)