China lifted the Ban 6 years ago to Rescue Real Estate

China recently implemented a pilot program aimed at helping real estate developers access new capital and restart housing projects that have been delayed.

China recently implemented a pilot program aimed at helping real estate developers access new capital and restart housing projects that have been delayed. The program, which was announced on November 28, 2020, involved the lifting of the ban on private equity (PE) companies investing in housing projects. The ban had been in place for six years and was intended to cool down an overheated real estate market. However, with the market now in a downturn, the ban has been lifted.

Under the new guidelines issued by the China Securities Commission (CSRC) in February 2021, PE funds are allowed to invest directly in housing projects, including those that have yet to be completed. They can also provide loans or guarantees to companies and projects in which they are investing.

However, firms that want to set up a real estate investment fund must meet certain criteria set by the CSRC. These criteria include high levels of capital, professionalism, compliance, and risk management. For example, a company needs to have at least 8 professionals with at least 3 years of real estate investment experience, including 3 people with 5 years or more experience.

Some experts predict that only around 20 PE firms will qualify under these strict regulations. By the end of 2022, there were 838 real estate PE funds in China, which managed total assets of 404.3 billion yuan.

Investors in a real estate PE fund must invest a minimum of 10 million yuan in the first round of funding, and their funds cannot exceed 20% of the total capital raised. The fund must raise a minimum of 30 million yuan from investors in the first round of funding. Real estate developers and related parties are not allowed to become the main investor or controller of these PE companies.

PE funds can invest in a range of real estate projects, including unfinished projects, affordable housing, and rental housing projects that are not subsidized by the government. Commercial projects, such as office buildings, and infrastructure projects, such as warehouses and roads, are also eligible for investment.

Despite the new program's potential, some experts doubt it will make a significant impact due to the strict regulations imposed. Additionally, many of the high-quality projects that would attract PE funds don't lack capital, while slow-selling projects may be unappealing to investors. However, the program's focus on rescuing unfinished projects could be a positive step for the real estate market in China.