(Yicai Global) July 15 -- After homebuyers in China refused to pay mortgages on unfinished apartments that total about CNY2 trillion (USD300 billion), Xi’an, capital of northwestern Shaanxi province, took the lead in coming out with measures to prevent delays in the delivery of homes and stiffen oversight of presale funds.

Presale funds, including deposits, down payments, and mortgage monies, need to be deposited in special escrow accounts, and developers should not directly collect or set up other accounts to access buyers’ money, according to a document issued by the Xi'an Housing and Urban-Rural Development Department late yesterday.

The move came on the same day that homebuyers in about 150 real estate projects across 20 provincial-level regions demanded developers complete new builds on time and that the apartments are delivered within a reasonable period, otherwise they will stop paying their mortgages.

Xi’an is the first city to come out with a policy in response to that, Yan Yuejin, director of Shanghai Yiju Real Estate Research Institute’s think tank, told Yicai Global.

The misappropriation of presale funds by developers is the main reason behind unfinished projects, as many homebuilders have run into financial difficulties since China started tightening up on the sector’s financing in the second half of last year.

In June, the authorities in Xi’an’s Weiyang district said work on a local property project had been halted because of the expropriation of CNY1.1 billion (USD162.8 million) of presale funds by indebted developer Shimao Group Holdings.

Xi’an, known the world over for its ancient Terracotta Army, now requires the authorities in each city district to supervise every step of a real estate project’s development, it also said yesterday. If builders fail to deliver homes on schedule, their credit ratings will be cut and made public. If there are irregularities in the construction process leading to a failure to hand over apartments to buyers, the real estate firms and their staff will be held legally responsible, it added.

Moreover, the Xi’an branch of the People's Bank of China will be responsible for guiding commercial banks to manage the escrow accounts. If the banks allocate presale funds to builders without permission, they will be responsible for recovering the money, the document said, adding that if they cannot recover the funds, they will be liable to make compensation.

Editor: Dou Shicong, Futura Costaglione