People's Bank of China and China Banking Regulatory Commission, Circular on Strengthening the Credit Management for Commercial Real Property

Issued: September 27 2007

Main Contents: Commercial banks may not grant loans to real property projects in which the ratio of the project capital (owner¡¦s equity) is less than 35% or for which the leasehold certificate, planning permit for land used for construction, planning permit for construction project or construction permit has not yet been obtained, or to real property developers that have stocked up land and sources for housing. Commercial banks may not accept commodity premises that have been vacant for three years or more as a collateral for loans. In principle, loans granted to real property developers may only be used for projects in the same region (Article 1). Commercial banks may not grant loans that are specifically used for payment of land grant fees to real property developers (Article 2).

According to the Circular, the minimum down payment of mortgages for purchase of residential property has been raised. In the case of first-time purchase of suite-style residential premises with a floor area of less than 90 square metres for self-use, the down payment on the mortgage (here and hereinafter, including mortgages in Renminbi and other foreign currencies) shall be at least 20%. In the case of first-time purchase of suite-style residential premises with a floor area of 90 square metres or more for self-use, the down payment on the mortgage shall be at least 30%. Where a borrower has already purchased residential premises with mortgage and applies for another mortgage to purchase a second set (or more sets) of residential premises, the down payment shall be at least 40%. The mortgage rate shall be no less than 1.1 time the base interest rate for the same period and in the same bracket announced by the People¡¦s Bank of China (PBOC), and the down-payment ratio and interest rate shall be increased by a large extent as the number of purchased premises increases. The specific scope of increase shall be determined by the commercial bank at its own discretion in accordance with relevant principles of loan risk management. A borrower¡¦s monthly expenditure on repayment of mortgage loan may not exceed 50% of his monthly income (Article 3).