Evergrande crisis: Guangdong province moves to ensure social stability, issues notice warning homebuyers of potential risks

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have also stepped up their scrutiny, Xinyuan, Modern Land, Sinic, wealth management product, it would provide subsidies

The property regulator in China’s southern Guangdong province has issued a notice warning homebuyers about potential risks.

The notice by Guangdong province’s Department of Housing and Urban-Rural Development contains 13 warnings and was published on Wednesday. The regulator has ordered all developers to display it in “obvious locations” at sales sites.

The notice comes as Beijing moves to ensure social stability. China’s property sector has to contend with fewer funding avenues and declining sales as the debt crisis at China Evergrande Group, one of the country’s largest property developers, continues to weigh on sentiment. Amid the many mounting concerns for the industry, local governments are trying to ensure that homebuyers’ rights are protected.

“The measure was introduced because of the unstable status of the property sector. [It is] also a part of the local government’s efforts to help with [the central government] campaign to rectify the market,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. “It will help with social stability, when the property market is stable.”

For instance, Evergrande, with more than US$300 billion in liabilities, still has thousands of properties to deliver to customers that have already made payments. The developer is based in Shenzhen in Guangdong province. Local authorities have also stepped up their scrutiny of its bank accounts to avoid funds being misused for other purposes.

The regulator has warned homebuyers of the risks of transferring money during a property transaction to a bank account that is not designated by the local government. Chinese authorities have required that developers put transaction proceeds into specific accounts designated by local governments since as early as 2010, as in the case of Beijing. Others have started this practice more recently, such as in the first half of this year.

The notice requires that developers prominently display phone numbers to receive complaints and for the reporting of any irregularities. Meanwhile, the regulator will step up patrols and checks at projects and hand out punishments for all irregularities.

Buyers were also alerted to the risk of developers selling properties without a presale approval from the government, as well as the sale of units at prices higher than their regulated prices or much lower than market prices.

The Guangdong province notice is likely to worsen developers’ cash flow problems after the offshore bond market, which has emerged as an important financing channels in recent years, saw investors dump Chinese property bonds. Evergrande peers Xinyuan Real Estate, Modern Land and Sinic Holdings Group have all said recently that they were having problems paying back their debt after Evergrande missed a few payments and failed to pay suppliers and wealth management product investors.

“For property companies, some illegal income or marketing income will be impacted,” said E-house China’s Yan. “[The notice] will have a tightening or negative effect on developers’ capital sources.”

Investors are also waiting for more signals from Beijing after Harbin, capital of the northeastern Heilongjian province, moved in the opposite direction and said this week that it would provide subsidies and ease presale restrictions.

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