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Updated January 25th, 2024 at 14:22 IST

China expands access to loans for real estate developers

The real estate sector in China has been grappling with a wave of defaults from developers, with China Evergrande, burdened by over $300 billion in debts.

Business Desk
Commercial real estate
Commercial real estate | Image:Republic
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The People's Bank of China, along with the National Financial Regulatory Administration and the Finance Ministry, has introduced new measures aimed at expanding access to commercial bank loans for property developers. The move comes as part of Beijing's broader efforts to stabilise financial markets and bolster the economy.

The newly implemented policies permit real estate firms to utilise bank loans secured against commercial properties, such as offices and shopping malls, to repay existing loans and bonds, as well as cover operational expenses. While these measures mark a significant shift, they do not signify a complete reversal of previous efforts to curb excessive borrowing and manage risks within the property industry.

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The regulations outline specific limitations, prohibiting the use of bank loans for acquiring commercial or rental housing, initiating new construction projects, or purchasing land. Additionally, these loans are capped at 70 per cent of the appraised value of the collateral property and are generally expected to have a maximum duration of 10 years, with an absolute limit of 15 years. Stringent due diligence requirements for banks before and after issuing loans have also been emphasized to mitigate risks.

The real estate sector in China has been grappling with a wave of defaults from developers, with China Evergrande, burdened by over $300 billion in debts, being a prominent example. The recent measures indicate a renewed commitment by Chinese authorities to restore confidence in the economy and stimulate growth.

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However, the overall impact of these rules on the property market remains uncertain. While the policies aim to provide crucial financial support to developers, challenges persist, including falling home sales and prices, which have dampened consumer spending. The property industry, a substantial contributor to China's business activity, faces the need for additional policy efforts to stabilize the market and foster recovery.

Economists at UBS acknowledge the significance of these measures but highlight the uncertainty surrounding the pace and scale of such loans.

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(With AP inputs)
 

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Published January 25th, 2024 at 13:23 IST

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