China's first real estate investment fund is set to make its market debut at the end of the month, providing local property developers with a much-needed source of capital in the wake of stricter control on bank loans for the sector.

The Jingrui Fund, which has US$200 million in start-up capital from its unnamed founders, will seek to pool money from institutional and private investors in China and abroad to invest in the country's booming real estate sector.

Since China lacks clear regulations on industrial funds, the Jingrui Fund will be registered overseas, most likely Hong Kong, according to the China Housing Industry Association.

The fund is likely to be sold by banks or securities firms.

Nie Meisheng, chairman of the association, said the fund will invest in all real estate sectors, including land and housing development, manufacturing of construc-tion materials and property management.

The fund, as others like it that are expected to spring up in the near future, could provide a lifeline to cash-strapped developers.

"Those funds are exactly what developers long for after the central bank tightened rules on loans to property companies," Nie said.

Developers in China can currently raise money through bank loans, stock listings or private investment. Bank loans account for 60 percent of the capital in China's real estate sector.

About 17.8 percent of domestic bank's lendings are directed to property developers. But the People's Bank of China is trying to reduce that number.

On June 13, the central bank issued a notice stating that developers aren't eligible for bank loans unless they put up at least 30 percent of the cost of a project out of their own pockets.

"The rule will lead to a capital shortage for many real estate companies, which deal with several projects simultaneously," said Haitong Securities' analyst Zhang Luan. "They may not have enough money to complete the projects under construction."

While some developers have raised money from the stock market, that isn't a viable option for most companies.

"Listing is difficult for real estate companies in China," Zhang said. "The securities regulator has very strict requirements for them."

Only five real estate companies managed to list during the more than two years since the central government lifted a four-year restriction on real estate IPOs in 2000.

The stock market is to help those pillar industries to raise money, not for service industries like real estate development, Zhang said.

(Shanghai Daily August 8, 2003)