EASTERN China’s Nanjing has become the first city to propose that property developers refund prepayments of unfinished homes to buyers, providing an example for other regions.

After two years of suspended construction, the majority of buyers of a residential complex in the capital city of Jiangsu Province have penned agreements with Zhujiang Investment for the project developer to return all the prepayments, local authorities announced recently.

In China, it is common for home buyers to make at least 15% down payments and take out a mortgage for the rest of the sum to secure a new home. After that, the bank transfers funds directly to the project developer in stages. But when some projects paused construction in recent years, buyers started wondering why they should keep paying the mortgage.

Following multiple rounds of negotiations, in mid-July, Zhujiang agreed to refund the buyers, except for mortgage interest. The project has not been moving forward since July 2022 when Suzhong Construction Group, the building contractor, got into dire straits due to the debt crisis of property giant China Evergrande.

The Central Government has emphasized multiple times that the delivery of residential properties should be guaranteed and the rights and interests of home buyers should be protected amid the downward trend of home sales because of real estate firms’ broken capital chains.

Besides promoting the resumption of construction, one option to guarantee delivery is negotiating with the developers to refund the purchasers so that they would be able to buy other guaranteed projects, said Li Yujia, chief researcher at a policy research center of Guangdong Urban and Rural Planning and Design Institute, as quoted by yicai.com.

However, refunds would mean that developers would not be able to retrieve the funds already spent on construction, which would exacerbate their financial plight, an industry insider said.

(SD-Agencies)