• The real estate sector's main regulator, along with the Financial Stability and Development Committee are drafting the new rules

• Escrow accounts hold 50%-70% of developers' pre-sale funds

To resolve the liquidity crisis afflicting the real estate sector, China is drafting nationwide rules to make it easier for property developers to access funds from sales still held in escrow accounts, reported Reuters.

The new rules would help developers meet debt obligations, pay suppliers and finance operations by letting them use the funds in escrow that are currently controlled by municipal governments with no central oversight, mentioned the report.

READ MORE: What is Evergrande crisis? Why are world markets jittery over Chinese group’s likely default?

The real estate sector's main regulator, the Ministry of Housing and Urban-Rural Development along with the Financial Stability and Development Committee and other authorities are drafting the new rules, which would be brought into effect by the end of January.

U.S. dollar bonds issued by developers including Sunac and Country Garden also rose following the report.

Liquidity crisis

The shortage of cash in the real estate sector manifested into a liquidity crisis when local governments halted withdrawals from escrow accounts last year Evergrande's debt crisis, shook the Chinese real estate sector.

Escrow accounts hold 50%-70% of developers' pre-sale funds, reported Reuters. Chinese developers are allowed to sell residential projects before completing them but are required to put those funds in escrow accounts.

Till October last year, the People’s Bank of China (PBOC) didn’t directly address Evergrande’s challenges since the developer fell behind on dollar-bond payments in September, though it said it would support the housing market.

READ MORE: Chinese central bank breaks silence over Evergrande crisis

Earlier this week, Country Garden Holdings, China’s largest developer by contracted sales last year, reported a sharp drop in its dollar notes after a report suggested that the firm was unable to garner investor support for a possible convertible bond deal.

Evergrande reported around $300 billion in liabilities last year, and is struggling to avoid defaulting on its international bonds. The cash-strapped real estate developer has been scrambling to sell assets to make interest payments for the same. It has sold off two jets, and stakes in a Chinese bank and a Hong Kong residential project to raise money.

Read more: Evergrande’s blows weaken Country Garden’s dollar bonds

Picture Credits: Reuters