Real estate brokers face stricter control after the Ministry of Construction vowed to strengthen supervision of capital liquidity in property deals to prevent brokers from embezzling customers' down payments.

According to a regulation issued by the ministry and the central bank this week, real estate brokers must open a bank account for every customer to deposit the down payment. This fund belongs to the buyer and should be supervised by a third party not involved in the real estate business.

The fund is to be kept frozen until the deal is sealed to prevent illegal brokers from misappropriating the money before the customer takes ownership of the property, said Li Binren, ministry spokesman, on Friday.

The regulation comes amid increasing reports of embezzlement and misappropriation by real estate brokers leading to property buyers suffering substantial losses, according to the ministry's website.

"Misappropriation and embezzlement of down payments has been the biggest risk for the real estate market," Li said.

Real estate brokers generally applauded the regulation, saying it would help improve the practices of brokers in the real estate market.

"This will make real estate deals more transparent and regulated, helping to prevent brokers from taking advantage of price differences and hiking up real estate prices," said a manager with Beijing-based Lianjia Real Estate Company, who declined to be identified.

Insiders said it was common practice in the real estate market for brokers to make use of the down payment to buy more houses. In doing so, they obtained more properties to sell at a higher price.

According to Yu Bin, general manager of Shanghai-based Zhongsui Investment Supervision Co Ltd, the new regulation compels all companies to put their funds under supervision, whereas previously Shanghai real estate firms were free to decide whether to have their funds supervised or not.

(China Daily January 27, 2007)