China has suspended registration of private equity asset management plans for securities and futures brokerages for cases where money is lent to property developers or to illegally fund downpayments to buy property, three sources said on Wednesday. The new regulation applies to indirect and direct investment in residential projects in 16 major cities where house prices have soared, according to three executives of securities firms who have seen a document from the state-sponsored Asset Management Association of China (AMAC).

The number of cities may be modified and expanded based on recommendations by the housing ministry, the document said. Existing investment by private equity investment funds in residential property is not affected by the regulation. AMAC, the self-regulatory body that oversees private funds, stipulated that funds raised through asset management plans by brokerages must not be lent to developers to replenish cash flow and purchase land, or to illegally fund downpayments for all institutions, via entrusted loans or other means. The industry watchdog said that the majority of such investment by brokerages in property came from banks and was concentrated in only a few hot markets.

Copyright Reuters, 2016