After the "owner's loan suspension" incident in July 2022, the CBRC issued three voice responses, and on July 28, 2022, the "guaranteed delivery building" was written into the Politburo meeting document. This means that "ensuring the delivery of the building" has become the top priority of real estate work this year.

1、 Policy for guaranteed delivery of buildings

"Protecting the Jiaolou" was the first task proposed at the Political Bureau meeting of the CPC Central Committee on July 28, 2022, and is a prerequisite for stabilizing the people's livelihood. The meeting pointed out that it is necessary to stabilize the real estate market, adhere to the positioning that houses are used for living, not for speculation. Due to the city's implementation of policies, make full use of the policy toolbox, support rigid and improved housing demand, compact local government responsibilities, ensure housing delivery, and stabilize the people's livelihood.

The Ministry of Housing and Urban-Rural Development, the Ministry of Finance, the People's Bank of China, and other departments have recently introduced measures to improve the policy toolbox, support the construction and delivery of sold, overdue, and difficult to deliver residential projects through special loans from policy banks, accurately focus on "ensuring the delivery of buildings and stabilizing the people's livelihood", strictly limit the use of residential projects that have been sold, overdue, and difficult to deliver, and implement closed operation and dedicated funds. Support the construction and delivery of unsold residential projects that are overdue and difficult to deliver through special loan incentives and bank loan follow-up, safeguard the legitimate rights and interests of home buyers, and maintain the overall situation of social stability.

2、 Specific measures and schemes for ensuring the delivery of buildings

Since July 2022, at least 36 regions across the country have proposed relevant support policies for "guaranteed delivery of buildings". The supervision of pre-sale funds and the "one floor one policy" have become the main measures to solve the problem of real estate in various regions. Since August 2022, support policies for real estate enterprises have gradually increased. In the policy environment of ensuring the delivery of housing and stabilizing people's livelihood, governments, real estate enterprises, and financial institutions across the country are actively taking various measures to bail out real estate enterprises.

（1） Local governments establish special real estate rescue funds and dispatch working groups

Zhengzhou, Wuhan, Suzhou, Tianjin, and other places have actively implemented the policy of "ensuring traffic and buildings, stabilizing people's livelihood". The practical solution mainly involves the following four aspects of policy content:

First, establish a special real estate rescue fund. For example:

1. Zhengzhou: A special rescue fund is set up under the Central City Fund, with a provisional scale of 10 billion yuan. The rescue project is limited to stock real estate projects whose future sales revenue can cover the project investment.

2. Wuhan: China Construction Bank plans to establish a 30 billion yuan rescue fund in Hubei Province as a pilot project to purchase problematic projects and convert them into public rental housing.

3. Nanning: It is expected to establish a real estate stabilization fund with a planned initial scale of 3 billion yuan.

Secondly, dispatch a working group to urge the project to resume work as soon as possible.

1. Suzhou: The neighborhood office in the area where the problem project is located and the district level functional departments have jointly established a working group to enter the project site, urge the project to resume construction as soon as possible, supervise the project quality, and fully implement the "one floor, one policy, one special class.".

2. Chongqing: Establish a project risk resolution and disposal team for real estate problems, arrange a special real estate team to follow up the project construction progress, and close the management of project account funds.

Third, return the land payment for the uncompleted project. For example:

Ganzhou, Jiangxi: The government of the Economic Development Zone has decided to purchase some of the uncompleted plots of the real estate enterprise Greenland Group, and return nearly 400 million yuan of land transfer fees to Greenland for project construction based on the construction progress.

Fourth, the supervision of pre-sale funds should be both standardized and moderately relaxed. For example:

1. Suzhou: The government designates a supervision account for pre-sale funds to supervise, ensuring that all subsequent pre-sale housing funds are used for the project itself, and preventing the pre-sale funds from being misappropriated.

2. Tianjin: It is stipulated that eligible projects can allocate pre-sale regulatory funds ahead of schedule, distinguish project risks from enterprise group risks, and separate high-quality projects of venture enterprises from the enterprise itself.

（2） Real estate enterprises: the Group introduces and takes over financial institutions

Currently, many real estate enterprises are also actively carrying out "self rescue" and taking multiple measures to ensure the delivery of the building, mainly involving the following four aspects:

First, the Group introduced a trust company to take over the project company. For example:

Evergrande Group has successively signed agreements with several trust companies, such as Everbright Trust and Minmetals Trust, to divest some urban projects to trust companies. The trust companies invest funds in the project companies to ensure the subsequent development and construction of the project and ensure the completion of the guaranteed delivery task. It is reported that Evergrande Group has reached cooperation with Chongqing Trust on Chongqing related projects.

Second, creditors acquire high-quality projects of insurance companies. For example:

CITIC Group, under the coordination of the Shenzhen Municipal Government, has acquired four projects of Jiazhaoye in Shenzhen, with a total value of about 50 billion yuan, greatly ensuring the timely delivery of high-quality projects by accident enterprises.

Third, the debt of the auction project company is introduced to the investor. For example:

On the Alibaba auction platform, the creditor's rights of Wuxi Cuizhu Real Estate Development Co., Ltd. are proposed to be transferred, with a starting price of 1.005 billion yuan, in order to attract investors to continue the construction of Wuxi Hengtai Yuejing Mansion Project as soon as possible.

Fourth, the cooperative development project shall be taken over by the funding party. For example:

Rongchuang's regional projects in Chongqing, such as Dianjiang, Caijia, and Wanzhou, will be taken over by the fund Fang Hongheng to acquire equity, and a city company will be established to lead the development and construction of subsequent projects.

（3） Financial institutions: banks strengthen risk control in the real estate industry

Recently, the China Banking and Insurance Regulatory Commission pointed out that it should support local governments to do a good job of "ensuring the delivery of buildings" and promote the stable and healthy development of the real estate market. A total of 200 billion yuan has been earmarked for the "guaranteed delivery building" rescue fund, which will be arranged by the Central Bank under the guidance of the China Development Bank and the Agricultural Development Bank of China within the existing loan lines. The Export-Import Bank of China may also join in the future. The central government will grant a 1% discount to policy banks based on the actual borrowing amount, with a discount period of no more than two years.

3、 Real estate rescue fund and operation mode

In response to the housing market rescue, there are currently "real estate rescue funds" set up in some places, focusing on ensuring the delivery of housing and the livelihood of the people, in order to stabilize the real estate market and promote a virtuous cycle of the real estate industry.

"Saving projects, not enterprises" is the bottom line principle of the real estate rescue fund. The main body of capital injection is the project company determined after screening, rather than the level of the insurance real estate enterprise group. The specific real estate enterprises to be reported and their scale shall be determined by the local government. Local housing and construction bureaus will make statistics on projects within their jurisdiction that have funding gaps for guaranteed delivery of buildings, and preliminarily and simply calculate the cash on the project account, funds in transit, residual value, future cash inflows of the project, as well as the progress of uncompleted projects reported by enterprises, development loans, and commercial bills. "If an enterprise project can assume sole responsibility for its own profits and losses, or if the funding gap is small, the local housing and construction system will allow it to turn over its own funds, giving priority to projects where funds cannot balance debts.".

（1） The first housing market rescue fund landed in Zhengzhou

In early August 2022, the first project of Zhengzhou's ten billion yuan rescue fund was officially launched. In accordance with the principle of "government guidance, multi-level participation, and market-oriented operation", the Zhengzhou City Real Estate Relief Fund, funded and established by Zhengzhou National Central City Industrial Development Fund Co., Ltd. as the master fund, led by Zhengzhou Real Estate Group Co., Ltd., and participated in the cooperation with China Construction Group on the Beilonghu Financial Island office building project.

（2） Following Zhengzhou, there has been progress in publicly establishing rescue funds in provinces and cities, such as:

1. Hubei Province: On August 23, 2022, Hubei Province Asset Management Co., Ltd. and Zheshang Asset Management Co., Ltd. jointly established a rescue fund to increase the acquisition and disposal of non-performing assets in the province, serving "ensuring the delivery of buildings, livelihood, and stability.".

2. Nanning City: In mid August 2022, Nanning City, Guangxi Zhuang Autonomous Region, established the Nanning Stable Real Estate Fund, focusing on housing related real estate projects.

3) Zhejiang Province: On June 7, 2022, Zhejiang Real Estate Association and Zhejiang Commercial Assets established a "Special Fund for Merger, Acquisition, and Reorganization", which will be used to promote the merger, acquisition, and reorganization of distressed real estate enterprise projects, resolve financial risks in the real estate industry, and ensure the smooth completion of problematic projects.

4) Shaanxi Province: Shaanxi Construction Real Estate Group and China Cinda have jointly established a merger and reorganization fund, giving full play to their respective advantages, taking the market as a guide, and actively conducting cooperation around the merger and acquisition of distressed real estate enterprises.

Although there are currently only a limited number of cities that publicly offer rescue fund schemes, with the continuous promotion of the "guaranteed housing" policy, industry insiders expect that more cities will establish similar rescue funds in the future.

4、 Bailout Financing and Disposal of Non Performing Assets

Due to the impact of the policy of ensuring the delivery of property, and the continuous upgrading of capital regulation, many real estate enterprises are facing the dilemma of cash flow disruption due to their inability to obtain development loans from banks or their delay in releasing mortgage balance payments. In addition, due to the impact of strong financial regulation, it is also difficult for real estate companies to obtain blood transfusion from mainstream relaxation channels such as trust and private placement. Therefore, more and more real estate enterprises are beginning to try to obtain financing from the perspective of non-performing asset disposal, such as "non real estate entities' claims on developers". Obtaining financing through the form of non-performing asset disposal is one of the commonly used paths. In the case of relatively high-quality projects, non-performing asset disposal institutions are generally interested in participating. Currently, more and more institutions in the market will consider cutting into the disposal of non-performing assets from the perspective of rescue financing.

Other officials have suggested that real estate funds introduce the four AMCs to participate in due diligence on rescue projects. A professional non-performing asset disposal agency will package the project's creditor's rights and debts for bankruptcy liquidation. After that, the fund will enter the market to participate in equity and solve the remaining delivery problem.

For example, on August 23, 2022, Hubei Province Asset Management Co., Ltd. and Zheshang Asset Management Co., Ltd. jointly established a 5 billion yuan rescue fund to strengthen the disposal of non-performing assets in Hubei Province. The purpose is to focus on helping enterprises to bail out, increase the acquisition and disposal of non-performing assets in Hubei Province, and serve "to ensure the delivery of buildings, people's livelihood, and stability.".

The relevant person in charge of the Local Financial Supervision and Administration Bureau of Hubei Province introduced that various parts of Hubei Province will further explore and arrange non performing assets and enterprise rescue projects of local financial organizations, establish a pool of non performing assets projects, strengthen communication and docking with asset management companies, formulate a work plan for one enterprise, one project, one policy, and increase the disposal of stock risks through various means such as transfer, clearing, restructuring, and market-oriented debt to equity swap.

An industry expert said that the establishment of a rescue fund is very necessary, and it is also an important way for subsequent local projects to resolve non performing real estate assets. The way in which a rescue fund is established solves the core issue, namely, the issue of money. At the same time, there are more ways and energy to solve the problem of returning to work.

epilogue

The current weak transaction in the real estate market and the "loan suspension" turmoil of uncompleted real estate projects in multiple cities across the country have once again made real estate risk the focus of attention by all parties. The "Baojiao Building" was first written into the Politburo meeting document based on the shutdown and loan suspension events in July this year. Therefore, local governments will take stabilizing real estate as the core goal and direction of their work in the second half of the year.

Under the tone of "Baojiao Building", there are two difficult problems to be solved: the first is where does the money come from? The second is who will lead or implement the rescue and revitalization of suspended and uncompleted projects?

Currently, measures have been taken to strengthen the supervision of pre-sale funds, require state-owned enterprises to accept orders, revitalize shutdown and uncompleted projects, and enter the rescue fund. These measures are relatively small compared to the nationwide real estate shutdown and uncompleted projects, and can only effectively rescue a few projects and solve the difficulties of some real estate projects. There is also a need to absorb more social capital into the real estate market and to find more effective rescue methods.