(Shanghai Daily)
Updated: 2008-01-22 13:53

Two recent scandals involving big real estate agencies from southern China are damaging the credibility of domestic property agencies and local experts are calling for more stringent regulations to ensure the healthy development of the sector.

In November, Jiang Fei, founder of Shenzhen-based Zhong Tian Real Estate, a well-known property agency which had as many as more than 150 branches and employed 2,000 people across China during its heyday at the beginning of 2006, vanished with some 40 million yuan (US$5.48 million), leaving clients, employees and suppliers in the lurch.

Just two months after the Zhong Tian scandal, Chuanghui, another Shenzhen-based real estate agency that claimed to be China's biggest property broker, was reported to have closed 1,000 of its 1,800 outlets since October because of a deteriorating market. The closure caused rowdy protests by both employees and customers amid deep concerns that the massive closures might be a prelude to the collapse of the firm.

"The Zhong Tian scandal has once again warned us that a third-party supervision bank account should be established for second-hand property transactions," said Sam Wei, an attorney with Co-effort Law Firm. "Related government departments, such as the local housing and land resources administration bureau or the local administration of industry and commerce, should introduce certain rules to ensure only qualified organizations and agencies will be allowed to supervise or have access to clients' capital."

As a matter of fact, the Ministry of Construction and People's Bank of China, the central bank, jointly issued a statement last January saying the country's real estate agencies will be required to set up a special-purpose bank account to deal with second-hand property transactions.

According to the statement, in the future, details such as when and how to make payment for a second-hand property deal should all be included in a trade contract, and all capital transactions should be conducted through the bank and no cash deal will be allowed.

The new requirement seeks to reduce disputes caused by ambiguous wording in the contract and also to crack down on unqualified property agencies which might misappropriate clients' money for other uses, industry people said.

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