Bank of Zhengzhou Photo: VCG

The Zhengzhou housing authority, in Central China's Henan Province, refuted allegations of huge amounts of regulatory funds being used to build houses that have reportedly been misappropriated, which partially led to the suspension of a local real estate construction project. This is the latest development in connection with the alleged default mortgage risks that put the local housing market under the public spotlight in Central China.

After the suspension of the construction project Kangqiao Jiuxi Garden in Zhengzhou, the representatives of the homebuyers talked with the Bank of Zhengzhou, which manages the finances of the project, and raised questions about the huge amount of funds that had reportedly been misappropriated and led to the stagnation of the construction of the housing project, according to media reports.

In a video of the conversation between the homebuyers and representatives of the Bank of Zhengzhou, the bank attributed the responsibility of the misappropriation of the fund to the local housing authorities, claiming that "if they [the housing bureau] do not allow the funding (transfer), we cannot," news outlet thepaper.cn reported.

The video has gone viral on the internet, sparking a wide discussion about who should be held accountable for the misconduct.

The person in charge of the Zhengzhou housing bureau told the Southern Metropolis Daily that "the bank's statement is inconsistent with the facts," and that the housing bureau has reported the situation to the relevant departments and will hold the bank accountable.

The current situation of the project has various causes and the relevant departments are also trying their best to solve the problem and strive for the early completion of the housing project, the Southern Metropolis Daily reported.

The homebuyers of the housing property issued a statement saying that since the project opened in July 2020, 1,700 apartments have been liquidated, with a sales supply of 4.4 billion yuan ($651 million), and the agreed delivery time is 2023, online news outlet Yicai reported on July 13.

However, since the heavy rainstorm in Zhengzhou last July, the construction of the project has been slowdown. Work was suspended in June and the funds were reportedly misappropriated. For these reasons, the homebuyers decided to suspend loan repayments, the report said. 

Yan Yuejin, research director at E-house China, told thepaper.cn that the public does not know the details of the supervision of the pre-sale funds of commercial housing projects, while the reasons for the insufficient oversight of pre-sale funds vary from project to project.

"The available information about who is responsible for the misappropriation of the pre-sale funds of the Kangqiao Jiuxi Garden project is still inadequate at the moment, which makes it difficult to make an accurate judgment," Yan said.

However, the expert noted that it is clear that a considerable part of the projects that are currently suspended and unfinished are related to the unclear flow of cash and inadequate supervision of funds, which have resulted in the revenue from sales of houses not being used for construction.

The establishment of a supervision system covering pre-sale funds for commercial housing will offer extra safeguards for homebuyers, and therefore is directly related to the on-time delivery of real estate projects, according to media reports.

If regulation over funds is correctly implemented, it is difficult for the real estate to end up unfinished.

Given the importance of the supervision funds, China's housing authorities issued a notice, urging all localities to speed up the improvement of the supervision system for the pre-sale funds of commercial housing. 

Global Times