Breakthrough in Financing Deadlocked Unfinished Buildings: Designing the Institutional Framework from a Certainty Engineering Perspective

The essence of the unfinished building problem appears to be a shortage of funds, but in reality, it stems from a loss of investor trust in the entire transaction system. When a landmark real estate project repeatedly fails to sell at judicial auction, and a large-scale model company valued at billions gains market recognition on the Hong Kong Stock Exchange, these two events form a stark ironic contrast: capital has a strong ability to price future cash flows, but trust in existing real estate assets has already collapsed.

The dilemma of China’s real estate sector is not only about tight cash flows or policy fluctuations but also involves deeper issues: numerous unfinished buildings and halted projects suffer from critical flaws such as opaque ownership rights, easy misappropriation of funds, unverifiable cash flows, and unclear exit paths. Investors facing such assets are not making investment decisions but are instead bearing unlimited risks. For this reason, even with policy easing and declining interest rates, capital remains on the sidelines—because no one believes that once the money is invested, it can be fully recovered.

True Examples of the Unfinished Building Problem: From Pangu to Pricing Failures

The Pangu incident is a highly representative signal. This once landmark asset, after being packaged for judicial auction, failed to attract buyers at an initial bid of approximately 5.94 billion yuan, resulting in a failed auction. On the surface, it’s due to a sluggish market; deeper down, it exposes a fatal information asymmetry: investors cannot penetrate the true rental income, lease stability, property cost structure, nor confirm whether funds will be diverted, nor see a clear future exit mechanism.

This reveals a harsh reality—no matter how strong the physical form of an asset is, if its financial form is extremely weak, it cannot achieve stable pricing in the capital market. Both unfinished buildings and Pangu’s failed auction point to the same core issue: lack of institutionalized financial tradability. In other words, the problem is not the property itself but the complete absence of governance systems, information disclosure mechanisms, and fund management standards around the property.

Four-Stage Recovery Mechanism: From Problems to Actionable Paths

The true revival of the real estate market should not be a temporary price rebound but a re-establishment of trust in asset valuation. To achieve this, four progressive institutional actions are necessary:

Step 1: Risk Clearance—Orderly Resolution of Bad Debts

The essence of clearing is not merely offloading assets but systematically dissecting, restructuring, and recognizing losses associated with hidden risks in unfinished buildings (bad debts, implicit liabilities, illegal guarantees, ownership disputes) through legal and financial tools, ultimately forming an asset package that is estimable and accountable. Only when all risks are clearly defined and quantified will investors dare to participate.

Step 2: Asset Layering—Matching Cash Flows with Capital Instruments

Real estate assets must evolve from “simple classification by use” to “scientific classification based on cash flow predictability and governance maturity.” Different asset types—residential, commercial office, industrial parks, hotels, public housing—have distinct cash flow profiles, requiring different capital tools. Layering aims to find the most suitable exit for each asset class.

Step 3: Dual-Exit Structure—Separate Pricing of Cash Flows and Operational Capacity

This is the most critical innovation in the framework:

• Cash Flow Exit: Fully mature, rent-stable commercial assets are securitized via REITs (Real Estate Investment Trusts). REITs essentially convert property operating cash flows into distributable income rights, with investors buying stable dividends over years rather than speculating on property price fluctuations.
• Operational Capability Exit: Platforms with replicable, growth-potential operational capabilities exit via equity (mergers and acquisitions, pre-IPO, private share transfers). A truly valuable operational platform’s worth isn’t just in a single building but in whether its methodology, team, and systems can be scaled to multiple buildings, districts, or even cities.

The beauty of this dual-exit structure is that: REITs are suitable for mature, stable, predictable cash flow assets; while equity capital is suited for scalable, replicable operational systems. They form a complementary cycle—platforms obtain expansion capital through equity, continuously injecting mature assets into REITs for ongoing exits.

Step 4: Systemic Repair—From Story-Driven to Data-Driven

The ultimate goal is to restore the asset’s valuation based on transparent disclosure, governance quality, and cash flow integrity. This means the capital market no longer asks “What’s the story behind this project?” but instead asks “What are the expected cash flows, how sustainable is the disclosure, and is the governance system verifiable?”

Three Key Points of System Engineering

Having a framework is not enough; specific institutional engineering is needed to support the dual-exit structure:

1. Project-Level SPV and Rights & Responsibilities Segregation

By establishing Special Purpose Vehicles (SPVs), clearly delineate ownership boundaries, asset scope, creditor lists, and management responsibilities. This makes each asset a standalone, auditable, accountable unit, avoiding the common scenario of “one project entangling ten debt disputes” in unfinished buildings.

2. Independent Custody and Fund Sealing

Whether via REITs, ABS (Asset-Backed Securities), or equity financing, investors ultimately buy the credibility of cash flows. This requires setting up regulatory-level independent custodial accounts, ensuring funds are first collected and then allocated, with full transparency and regulatory oversight. This is where fintech excels: account systems, payment clearing, permission controls, risk management strategies, audit trails.

3. Cash Flow Dashboard and Continuous Disclosure

Why is Pangu difficult to transact? Essentially, because its assets cannot be continuously explained. To change this, rent agreements, collection rates, vacancy rates, energy costs, maintenance capital expenditure, taxes, and distribution rules must be transformed into continuously updated data products, allowing investors to monitor real-time operational status as easily as stock prices. The dashboard is not a PPT but a living, verifiable data system.

Once these three elements are operational, a good asset is clearly defined—not by luxurious decoration but by predictable cash flows, sustainable disclosures, and verifiable governance.

International Benchmark: Insights from Overseas Golden Visa Systems

Overseas property-plus-identity programs provide a systemic reference. Take Greece’s Golden Visa as an example: its design is not simply “buy property, get residency,” but involves deep financialization of real estate:

• Investment thresholds are tiered by region (e.g., €800,000 or €400,000)
• Use restrictions are clearly defined (e.g., bans on Airbnb-style short-term rentals)
• Ownership rights are clarified
• Renewal of rights is standardized

This design ensures each transaction has a clear institutional framework and explicit risk pricing. In contrast, China’s unfinished and halted projects suffer from opaque information, unstable governance, and uncertain exit paths, leading to the opposite—risk is always priced above true value, despite being the same real estate.

This comparison teaches us: true revival is not about making assets more expensive but about making them reliably trustable in valuation.

Correct Approach to RWA (Real-World Asset Tokenization)

In current discussions, RWA is often misunderstood as “putting real estate on the blockchain,” but this is a complete misconception. The real value of RWA lies in leveraging blockchain’s programmable features to turn the most critical and easily questioned aspects of project governance—ownership boundaries, fund collection, node disbursement, continuous disclosure, audit reconciliation, distribution rules, default handling—into an executable, traceable, auditable institutional process.

Specifically, the correct RWA model should be:

• On-chain representation of SPV interests and cash flow rights, not the property itself
• On-chain records of verifiable proof of cash flows and compliance status, not just prices
• On-chain transactions of constrained, escrowed, auditable, transferable shares, not unregulated tokens

Implementation-wise, a recommended approach is “permissioned/consortium blockchain + regulator-readable interfaces”: encrypt key ownership and contractual fields on-chain, with original documents held by custodians and auditors; cash flows collected in regulated accounts, with verifiable reconciliation mapped onto the chain; transfer restrictions (e.g., qualified investors, lock-up periods, use restrictions) enforced via smart contracts. This way, the value of the chain is not in removing intermediaries but in making intermediary actions fully verifiable, transferring institutional credibility from paper to an auditable operational system.

CRS and the Preconditions for Financing in the Era of Tax Transparency

A crucial but often overlooked change is the expansion and strengthening of CRS (Common Reporting Standard). OECD has explicitly included digital finance in its governance scope: launching CARF (Crypto Asset Reporting Framework) for crypto service providers and revising CRS (CRS 2.0) to include electronic money and digital assets.

According to official plans, jurisdictions like Hong Kong will complete CARF legislation by 2026, with service providers collecting information from 2027, and exchanging data with partner jurisdictions starting in 2028; CRS revisions are scheduled for implementation from 2029.

What does this mean? On-chain financing will not make funds more hidden; instead, compliance will become a prerequisite for financing, not just a backend cost.

Especially when dealing with offshore funds, stablecoins, or accessing investors via exchanges, custodians, or digital wallets, the following CRS/CARF-related tasks will shift from behind-the-scenes compliance to preconditions for transaction validity:

• Tax residency identification
• Penetration of account controllers
• KYC/AML due diligence
• Reporting data preparation and auditability

This objectively requires on-chain financing to incorporate tax transparency and information compliance as part of product capabilities, enabling a replicable and scalable capital inflow mechanism.

From Financing Narratives to Certainty Engineering

Returning to the core question of why funds are reluctant to enter unfinished buildings:

The superficial answer is high interest rates and high risks. The real answer is that investors cannot find three things in the project:

1. Why dare to put money in—because ownership is clear, risks are cleared, governance framework is mature
2. How to ensure funds are not diverted after entry—because funds are managed in a closed manner, disbursed at project milestones, traceable for each transaction
3. How to handle and exit if progress stalls—because there are predefined breach mechanisms and clear pathways for takeover

If on-chain financing is to become a new channel for financing unfinished buildings, the key is not how cool the tokens are but whether the project truly achieves certainty of production:

• Funds are fully managed in a sealed manner
• Disbursements are tied to project milestones
• Continuous reconciliation and disclosure are possible
• Distribution and disposal rules are executable

Once this institutional system is truly operational, financing ceases to be mere life-supporting blood transfusion and instead becomes a replicable project financial product: initial funds used for construction → delivery and operation generate cash flow → cash flows are allocated according to predefined structures → ultimately creating conditions for subsequent REITs, ABS, mergers, or equity exits.

Future Outlook

In the coming years, the real estate industry will undergo a profound shift from “asset-driven” to “governance-driven”:

1. From scarcity of REITs to scarcity of compliant assets

As pilot programs for commercial real estate REITs and infrastructure REITs expand, the exit tools themselves will no longer be scarce. The real scarcity will be assets that meet governance and disclosure standards. The market will demand more rigorous transparency in cash flows, stable operations, and verifiable custodianship.

2. Valuation returning to cash flow fundamentals

Core valuation parameters will shift to lease quality, collection rates, vacancy, operating costs, and capital expenditure, rather than stories, location, or potential. The revival of unfinished buildings must be based on this foundation.

3. Increased importance of M&A integration and platform-based operations

Capital will increasingly pay for scalable, replicable operational systems. This will promote a transition from single-project development to platform-based operations, shifting from traditional developers to urban operators.

4. RWA moving toward permissioned, custodial, and audited models

RWA will not be a tool to bypass regulation but a means to strengthen regulatory effectiveness. Its implementation will focus on closing project financing loops and re-financializing existing assets.

5. Cross-border capital entry shifting from asset quality to compliance capability

Tax identity penetration, account control, fund traceability, and auditability will become prerequisites for offshore capital inflows. This will objectively promote compliance capabilities as an integral part of financing capacity.

Final Conclusion

The institutional transformation of real estate ultimately depends on whether governance can be standardized, replicable, and capable of being regulated as an operational system. The breakthrough in the unfinished building problem does not lie in lowering interest rates or policy stimulation but in establishing a systemic framework that encourages investors to dare to enter, stay, and exit—this is the true aim of the four-stage recovery mechanism, dual-exit structure, and institutional engineering. When these systems move from paper to operational reality, capital will truly return, and unfinished buildings can find new life in the new cycle.