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Regulators to tighten management on property loans

By Ding Qi (chinadaily.com.cn)
Updated: 2008-08-28 17:37

The country's financial regulators have urged financial institutions to upgrade controls on loans to property developers to prevent credit risks and improve land use efficiency, the China Securities Journal reported Thursday.

In a circular jointly issued by the People's Bank of China, the country's central bank, and the China Banking Regulatory Commission, the regulators called on commercial and policy banks as well as banking regulators at all levels to tighten management on credit of construction projects and commercial properties.

The circular, dated on July 29, aims to encourage more economical and efficient land use in the country, the central bank said on its website.

According to the circular, banks are prohibited to grant loans to property developers for land purchases. If a developer uses acquired land as collateral for bank financing, the loans should be no more than 70 percent of the land's assessed value and can only be extended for less than two years.

Lands left undeveloped for more than two years or occupied illegally can't serve as guaranty for development loans either, according to the document.

It also asked financial institutions to give priority to supporting the development of low-renting, affordable houses as well as medium- and small-sized apartments below 90 square meters.

According to industry insiders, the circular made clear the financial authority's resolution in implementing the nation's tightening macro-economic policy. The prudent measures are helpful to prevent potential financial risks in the real estate sector; however, it also means property developers will have to face more financing difficulties within a certain period of time in the future.

Statistics from the central bank showed that by the end of June, domestic banks held loans totaling 5.2 trillion yuan ($580 billion) to property developers and housing buyers, up 22.5 percent year-on-year. However, the growth rate was two percentage points lower than the same period last year, representing a decline for seven consecutive months since last December.

Meanwhile, among 70 large- and medium-sized cities in the country, housing prices of 29 remained flat or went down in July, while property trading volume in most cities shrank compared with previous months, another government statistics showed.