- Notice aims to increase housing supply for low-income families, maintain strict loan policies for real estate investors and speculators, and improve risk management within the real estate market
The General Office of the State Council issued a Notice Regarding Facilitating the Stable and Healthy Development of the Real Estate Market on January 7, 2010 (the Notice). Following are the key goals identified in the Notice.
Increasing the Supply of Low-Income Family Houses and Ordinary Commercial Residential Houses
The Notice requires local governments to expedite the construction of ordinary commercial residential houses. With respect to ordinary commercial residential housing projects that have been approved, the governments shall urge real estate developers to complete the construction of the projects, publicize all information about the houses available for sale at one time and sell the houses. Furthermore, the local governments shall increase the land supply for commercial houses at middle and low prices, affordable houses and low-rent houses. If requisition of land for agriculture use is involved in the residential housing project, the relevant authorities shall expedite the approval procedures.
Strictly Implementing the Credit Policies Regarding the Purchase of More Than One House by One Family
Financial institutions shall support residents in purchasing a first house to serve as their residence, but strictly control the granting of loans for a second house (or more) to restrain investment and speculation in residential real estate. If a family has purchased one residential house by using a bank loan and then applies the loan to additional residential houses, the down payment for the second house shall not be less than 40 percent of the total purchase price and the interest rate of the loan shall be decided based on the credit risk. These provisions are consistent with those of the Notice Regarding Strengthening Loan Management for Commercial Residential Property, issued by the People’s Bank and China Bank Regulatory Commission on September 27, 2007. Many commercial banks acknowledge that they did not strictly implement the provisions over the past two years. Enhancing Risk Control and Market Supervision
- Financial institutions are prohibited from making loans to real estate developers or for real estate projects that are not in compliance with the provisions of credit policies including the capital requirements for real estate projects. In addition, it has been reported recently that the Ministry of Land and Resource has been assisting the China Security Regulatory Commission on examination of projects of real estate developers who are applying for IPOs or refinancing. These real estate projects may involve the purchase of agriculture land, implementation of the grant contract of land use rights (LURs) and so on. Some analysts believe that financing in the capital market of real estate developers will become difficult in 2010 and continue into the next couple of years.
- The Notice specifies that the relevant authorities shall strengthen the supervision of cross-border investing and financing activities to prevent “hot” money from impacting China’s real estate market.
- The Notice marks the first time that the State Council has requested the State-owned Assets Supervision and Administration Commission to regulate real estate investments by large state-owned entities (SOEs). Such request is based on the fact that some large SOEs invested in the real estate market and bid LURs at extremely high prices, which caused the rise in real estate prices and adversely impacted the development of the real estate market.
- According to the Notice, local governments shall explore a new mechanism for granting LURs to replace the current bidding system, in which winners are determined solely or mainly based of the price offered by bidders. In the new system, local governments shall consider the price, payment schedule, development timeframe and other factors in determining the winner. Developers that have delayed the payment of granted LURs or violated the terms of the contract of granting LURs shall be restricted from bidding for granting LURs. Regarding the payment for granted LURs, the Ministry of Finance, the Ministry of Land and Resource and other relevant authorities promulgated a notice on November 18, 2009 that requires that the down payment shall not be less than 50 percent of the total LUR price, and the full payment for granted LURs shall be made to the land administration within one year.
In conclusion, most of the provisions of the Notice repeat or emphasize the provisions of regulations and policies that have been promulgated in past years, although it is should be viewed as a strong signal of the central government’s determination to maintain a healthy real estate market. The effectiveness of the Notice will depend on the implementation by the local governments.