Studying Loans for Enterprises to Acquire Real Estate Land

On October 17th, Tao Ling, Deputy Governor of the People's Bank of China, introduced the implementation of a package of real estate financial policies at a press conference held by the State Council Information Office.

The first policy is to reduce the interest rates on existing mortgages. Mortgage interest rates affect thousands of households, and reducing them is a concrete measure to implement the decisions and arrangements of the Party Central Committee, maintain the people's position in financial work, and benefit the people's livelihood. In terms of progress, on September 29th, the People's Bank of China issued an announcement to improve the pricing mechanism for commercial personal housing loans. On the same day, the People's Bank of China guided the market interest rate pricing self-discipline mechanism to issue a self-discipline initiative, and commercial banks also issued announcements. On October 12th, major commercial banks issued operational details. Currently, commercial banks are working overtime to amend contracts and systems to prepare for the changes. It is expected that the bulk adjustment of most existing mortgages will be completed by October 25th, meaning that the adjustment results can be viewed through the designated channels of the lending banks starting from October 26th. Some small and medium-sized banks may take a bit longer to complete the adjustment, but it is generally expected that all will be completed by October 31st.

For convenience, the vast majority of borrowers will not need to visit bank branches. For mortgages with floating interest rates, borrowers do not need to apply, and commercial banks will adjust them in a unified batch, accounting for over 90% of the existing mortgages. For mortgages with fixed interest rates, borrowers can handle them through online or mobile banking of commercial banks, also without the need to visit bank branches. For those who obtained mortgages from small and medium-sized banks, due to the incomplete online systems of some of these banks, borrowers may need to visit bank branches. Please pay attention to announcements from lending banks for specific situations.

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Borrowers are also generally concerned about the specific mortgage interest rates after policy adjustments. Mortgage interest rates are composed of the loan market报价利率 and the added margin. According to the requirements of this policy, the adjustment is to the added margin. For existing mortgages with an added margin higher than -30 basis points, the margin will be uniformly reduced to -30 basis points. For example, the lowest added margin for first套房 mortgages in Beijing was previously 55 basis points, which will now be reduced to -30 basis points, meaning the mortgage interest rate has been reduced by 85 basis points. For second套房 mortgages in Beijing, the lowest added margin was previously 105 basis points, and according to the minimum city rate requirements, it will now be reduced to -5 basis points, resulting in a reduction of 110 basis points in the mortgage interest rate. The reduction will be even greater in areas outside the Fifth Ring Road.

After the adjustment of existing mortgage interest rates, how much can be saved on mortgages? It is estimated that the average reduction in existing mortgage interest rates will be around 0.5 percentage points, which will save a total of 150 billion yuan in interest expenditure, benefiting 50 million households and 150 million residents. Specifically, according to calculations by commercial banks and taking Beijing as an example, if the original mortgage interest rate for a home purchase in Beijing was 4.4%, and after the adjustment, it is 3.55%, then a 1 million yuan, 25-year fixed installment mortgage can save 469 yuan per month, saving more than 140,000 yuan in total interest expenditure. Since there are many operational details involved in the adjustment of existing mortgage interest rates, involving different borrowers in different regions, please refer to the policy and operational details for specific handling.

The second policy is to unify the minimum down payment ratio for mortgages to 15%. The purpose of this policy is to better support rigid and improved housing needs. After the policy was released on September 24th, the headquarters of the People's Bank of China guided local branches to implement policies according to local conditions and cooperate with city governments to quickly implement them. Currently, except for the three first-tier cities of Beijing, Shanghai, and Shenzhen, which have taken differentiated arrangements on their own, most cities in the country no longer distinguish between first and second homes, and the minimum down payment ratio has been uniformly adjusted to 15%. It can be noted that many cities have also adjusted real estate control policies such as purchase restrictions and taxes, and market confidence and sales have improved.

The third policy is to extend the term of two real estate financial policies. This policy is an adjustment to two previously issued policy documents. On September 29th, the People's Bank of China and the Financial Regulatory General Administration jointly issued an adjustment notice. The first is the adjustment of the "Financial 16 Articles" in November 2022. The original regulation was that for real estate development loans, trust loans, etc., that are due within the next six months, they can be extended for one year without adjusting the loan classification. This policy is beneficial for stabilizing real estate financing and improving the industry's capital situation. It was originally scheduled to expire at the end of 2024, and this time it has been extended to the end of 2026. The second is the adjustment of the management notice for operational property loans in January 2024. The original regulation was that for real estate companies with standardized operations and good development prospects, operational property loans issued by national commercial banks can be used to repay the company and the group's real estate-related loans and bonds. This policy has relaxed the use of loans and is conducive to improving the capital situation of real estate companies. It was originally scheduled to expire at the end of 2024, and this time it has also been adjusted to expire at the end of 2026.

The fourth policy is to optimize the policy for refinancing of affordable housing. The refinancing of affordable housing is a structural monetary policy tool. On May 17th, the People's Bank of China announced the establishment of a 300 billion yuan refinancing for affordable housing to encourage banks to issue commercial loans to support the purchase of unsold commercial housing for distribution or rental as affordable housing. The purpose of this policy is to promote the inventory of existing commercial housing. In terms of implementation, the People's Bank of China, in conjunction with the Ministry of Housing and Urban-Rural Development, established a working group under the urban real estate financing coordination mechanism to promote local governments to increase their efforts.

On September 24th, based on the needs of previous practices, to further enhance the market incentives for banks and acquisition entities, the policy was improved, and the proportion of refinancing funds provided by the People's Bank of China was increased from the original 60% to 100%, thereby further supporting the willingness to purchase existing commercial housing and accelerating the destock of the real estate market. On September 29th, the People's Bank of China officially issued a notice, and commercial banks will apply for refinancing from October, and recently some commercial banks have made declarations. With the joint efforts of all parties, the acquisition of existing housing will achieve further positive progress.

The fifth policy is to support the acquisition of existing land by real estate companies. The People's Bank of China, together with relevant departments, is urgently studying to allow policy banks and commercial banks to issue loans to qualified enterprises to acquire existing land from real estate companies, and the People's Bank of China will provide necessary special refinancing support.Tao Ling stated that, overall, the People's Bank of China has recently introduced a package of financial policies, including reserve requirement ratio cuts and interest rate reductions. These policies, together with the aforementioned real estate financial policies, will continue to play a positive role in boosting confidence and stabilizing expectations.