The People’s Bank of China (PBC), in collaboration with the China Banking and Insurance Regulatory Commission (CBIRC), published a notice regarding financial support for the real estate market. PBC also announced that it will cut the required reserve ratio (RRR) for financial institutions by 0.25 percentage points on December 5, 2022, except for some incorporated financial institutions that have already implemented an RRR of 5%. This RRR cut is intended to keep at an liquidity adequate level, improve the funding structure of financial institutions, expand their sources of long-term stable funding, enhance their capabilities to allocate funds, and support industries as well as micro small and medium-sized enterprises (MSMEs) that were severely affected by COVID-19.
The notice on financial support for the real estate market aims to provide a long-term mechanism for the smooth functioning of the real estate market, accommodate basic and improving housing demand through city-specific measures, ensure steady and orderly growth of real estate financing, and protect the legitimate rights and interests of housing consumers. As part of this notice, financial institutions are encouraged to:
- support sound development of well-governed and credible real estate firms focusing on property development business.
- implement differentiated credit policies suited to local circumstances, such as setting city-specific down payment ratios or mortgage rate floors, in order to meet basic and improving housing demand.
- lend to commercially-viable projects with manageable risks so that construction firms will have continuous and stable access to financing.
- extend or reschedule outstanding development loans and trust loans based on commercial negotiations with property developers while safeguarding creditors’ rights, with the aim of delivering delayed projects.
- support bond issuance by financially sound developers facing short-term difficulties.
- use trusts and other asset management products to meet reasonable financing needs in the housing sector.
- voluntarily provide additional finance for commercially viable projects, specifically those projects whose sales revenue could cover the cost of special loans and additional finance, or those projects that have well-defined lending and repayment arrangements.
- finance the mergers and acquisitions (M&A) of housing projects in a prudent and orderly manner, especially the M&A of projects by quality property developers from distressed developers.
- explore law-based and market-based approaches such as establishing funds to resolve the risks of distressed property developers, and thus supporting the completion of housing projects.
- negotiate with homebuyers on extending mortgage repayments in a market-oriented and law-based manner if their property purchasing contracts have been changed or canceled, or if they are under COVID-induced hospitalization, quarantine or unemployment.
- protect the credit records of homebuyers whose mortgage repayments are deferred.
- extend the grace period if the cap on real estate loans cannot be met.
- provide better credit support to rental housing companies that own rental property business, especially those companies that operate as independent legal entities with a clear-cut business scope, and are specialized in property investment and management.
- provide financing in a market-oriented and law-based manner to the development of rental properties through acquisitions and rebuilding of housing projects and issue financial bonds in support of rental properties.
Keywords: Asia Pacific, China, Banking, Real Estate, Required Reserve Ratio, Mortgage Lending, Lending, Credit Risk, Liquidity Risk, Basel, ALM, PBC, CBIRC
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