According to four people with knowledge of the matter, China is drafting nationwide rules to make it easier for property developers to access pre-sale funds kept in escrow accounts, in its latest step to alleviate a severe cash crunch in the embattled sector.
Years of regulatory restrictions on borrowing through typical channels have plunged the sector into a deep crisis, which was highlighted last year by the problems at China Evergrande Group, once the country's top-selling developer and now the world's most indebted property company with $300 billion in debt.
The new rules would allow developers to use funds in escrow that are currently controlled by municipal governments with no central monitoring to meet debt obligations, pay suppliers, and finance operations, according to the sources.
"Following Evergrande's crash, local authorities imposed an abrupt clampdown on escrow accounts, squeezing liquidity for some high-quality names. A corrective action by the central government is badly needed" Nan Li, associate professor of finance at Shanghai Jiao Tong University, said.
The new rules are being drafted by the sector's major regulator, the Ministry of Housing and Urban-Rural Development, and other agencies, according to three of the sources, and they are being guided by the cabinet-level Financial Stability and Development Committee.
Beijing hopes to implement the new rules by the end of January in an effort to prevent a larger crisis, they added.
The property market accounts for around a quarter of China's economy, which is the world's second-largest behind the US.