China widens commercial property loan uses to ease liquidity

January 24, 2024 7:30 PM EST

FILE PHOTO: Buildings are seen in Beijing, July 3, 2013. REUTERS/Jason Lee/File Photo

BEIJING (Reuters) - China on Wednesday said it is widening the uses for commercial property lending by banks in its latest effort to ease a liquidity crunch facing troubled real estate firms.

According to a notice jointly issued by the central bank and the financial regulator, by the end of this year banks will be able to provide commercial property loans to eligible developers to allow them to pay off debts that are not necessarily related to the project pledged as collateral.

Commercial property loans are given by banks to developers that operate profitable and completed commercial real estate, such as shopping centres and hotels.

At present, the loans are only able to be used to supplement the property's operating capital, or to repay debts generated by the construction of the project, or acquisition of the property, used as collateral.

The measure was released after central bank Governor Pan Gongsheng said at a press conference on Wednesday afternoon that policies on improving commercial property loans will be announced. The remarks may give hope to investors who have been frustrated by China's efforts to put a floor under a real estate sector that underpins consumption and household wealth.

The debt crisis emanating from China's beleaguered property sector is one of the main headwinds to the country's economic growth, and it has led to downfall of some of the biggest real estate developers including Evergrande Group and Country Garden.

Banks should, based on factors such as the operating conditions of the property, assessed value, and the borrower's debt repayment ability, reasonably determine the loan amount, the regulators said.

The term of the loans shall generally not exceed 10 years, and the maximum term shall not exceed 15 years, they said. The value of loans should in principle not exceed 70% of the appraised value of the property.

(Reporting by Ziyi Tang and Ryan Woo; Editing by Sharon Singleton)

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