BEIJING, Jan 24 (Reuters) – China said on Thursday it would expand the use of commercial real estate loans by banks, in the latest effort to ease a liquidity crunch facing struggling property firms.
According to a joint notice issued by the central bank and financial regulator, by the end of this year banks will be able to provide commercial property loans to eligible developers, allowing them to repay debts that are not necessarily related to the projects they have pledged as collateral.
Commercial real estate loans are provided by banks to developers who operate profitable, completed commercial properties, such as shopping centers and hotels.
At present, loans can only be used to replenish working capital in real estate or to repay debt incurred in the construction of a project or the acquisition of real estate to be used as collateral.
The move came after People's Bank of China Governor Pan Gongsheng said he would announce policies to improve commercial property loans at a press conference on Wednesday afternoon. The comments may offer hope to investors frustrated with China's efforts to shore up its real estate sector, which underpins consumption and household wealth. The debt crisis stemming from China's struggling real estate sector is one of the main headwinds to the country's economic growth and has led to the collapse of major property developers such as Evergrande Group (3333.HK)(opens in new tab) and Country Garden (2007.HK)(opens in new tab).
The regulator said banks should make rational loan determinations based on factors such as the operating status of the property, its valuation and the borrower's ability to repay the debt.
The loan period generally does not exceed 10 years, and at most 15 years. The loan amount, in principle, cannot exceed 70% of the appraised value of the property.
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Reporting by Ziyi Tang and Ryan Woo; Editing by Sharon Singleton
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