Chinese real estate developers may find it difficult to borrow money from banks after the central bank tightened controls on such loans in the domestic housing market.
The People's Bank of China reiterated on Thursday the new rule that real estate developers who want to borrow should have assets equivalent to at least 30 percent of the cost of the project they are planning, and individual housing buyers can borrow no more than 80 percent of the house price.
Meanwhile, all China's real estate-related loans issued after June 2001 will be investigated. Insiders said the move is part of government's efforts to control the overheated real estate sector.
The vacancy rate of China's housing projects stands at an average of 19 percent, totalling 125 million square meters, at the end of October, compared with the international level of between 10 percent and 15 percent, according to the statistics from the China Real Estate Association.
Domestic banks issued 200 billion yuan (US$24 billion) worth of loans to real estate firms and 750 billion yuan to individual home buyers up to October.
"That amount is dangerous for banks, because many of the developers' credits are 'questionable,'" said Yang Shen, chairman of the association.
The average debt-to-asset ratio of domestic real estate companies is 72 percent, with the highest reaching 94 percent.
The central bank said its probe will last until the end of the year, and will focus on real estate projects developed since last June.
Zhang Rongfang, a spokesman of the People's Bank of China's Shanghai branch, said some huge real estate projects in the country's comparatively wealthier regions, including Shanghai, are the focus of the investigation. However, he declined to comment on whether the central bank suspected any malpractice in financial transactions in the eastern regions.
But an industry insider confirmed that there were several wrongdoings.
It is a common practice for real estate developers to get loans by undervaluing the cost of their project, said Feng Jianzhong, financial department manager of Shanghai Best Land Properties Limited.
When some developers do not have asset value equal to 30 percent of the whole development cost, they report the cost for the first phase construction first and develop the remaining phases later.
Shanghai Daily learnt that a locally listed commercial bank is offering some of its "very important clients" preferential interest rates, which means 1 percentage lower, on individual housing loans.
The central bank is also investigating commercial banks' practice in lowering the down payment.
(eastday.com December 9, 2002)
