Q: What is thebackground of the Supplementary Notice?
A: In order to implement the spirit of theNational Urban Housing Work Conference and series of guidelines and policies ofthe State Council on strengthening macroeconomic management of the housingmarket, and to prevent financial risks, on September 27th, the PBCand the China Banking Regulatory Commission (CBRC) jointly released theNotice of the People’s Bank of China and the China Banking RegulatoryCommission on Strengthening Management of Commercial Real Estate Credit (PBCDocument [2007] No.359, hereinafter referred to as the Notice). TheNotice aims to strengthen macroeconomic management of commercial realestate credit, and provide guidance for individual housing consumption andinvestment by tightening management of real estate development loans,residential housing loans and commercial real estate loans. So far, theNotice, with its impacts emerging, generally has received positive responsefrom all walks of the society. In the past few months, the media has beenfocused on how to define second home mortgage or multiple home mortgage. Inlight of the different understanding of the articles of the Notice andtheir policy intentions, and in order to uphold seriousness, effectiveness andpracticability of the policy, the PBC and CBRC recently jointly released theSupplementary Notice on Strengthening Management of Commercial Real EstateCredit (PBC Document [2007] 452, hereinafter referred to as the SupplementaryNotice) which further clarifies relevant issues.
Q: what is themain content of the Supplementary Notice?
A: Firstly, it stipulates that commercialbanks shall define a second mortgage home according to the property owned bythe families of mortgage applicants. Secondly, for those families havingpurchased first residential home with mortgage loans, if their per capitaacreage is lower than local average level, they can still be subject to theterms of first mortgage policy, but they shall provide total family acreagecertification. Thirdly, for families whose first mortgages were financed byHousing Provident Funds, when apply for second mortgages from commercial banks,the terms shall be subject to the Notice. Fourthly, commercial banksshall earnestly fulfill their informative obligation, and require mortgageapplicants to provide truthful information. If applicants are found to haveprovided false information and certifications, no commercial bank shall accepttheir application. For employers found to have provided false information andcertifications, no commercial bank shall accept certifications provided by themany more.
Q: Why do youdefine a second home mortgage according to the property owned by the familiesof mortgage applicants?
A: The Supplementary Notice stipulates that commercial banks shalldefine a second home mortgage according to the property owned by the familiesof applicants. Based on current situation of China,it is reasonable and complies with the Principle of Community Property stipulatedby Chinese Civil Law. It will be conductive to enforce the articles of theNotice, and strengthen macroeconomic management of the housing market. Regardingthe different definitions of family, the Supplementary Notice specificallyclarifies that family members only include the applicant, his or her spouse anddependent children.
Q: why familieswith per capita acreage lower than local average can apply for second mortgagesin the same terms as the first ones?
A: Stipulated in the Supplementary Notice,a second home mortgage applicant having purchased first residential home with amortgage can be subject to the same terms of the first mortgage policy if percapita acreage of his or her family is lower than local average. However, suchan applicant shall pay off his or her first mortgage, and provide total familyacreage information certified by the local real estate management departmentbased on real estate registry information system. Concerning this issue, theMinistry of Construction will release a guidance in the near future. Commercialbanks can justify a first home mortgage applicant according to his or herfamily acreage information and residential certification. Local per capitaaverage shall be determined based on the annual data of last year released bystatistics department. All other mortgage applicants who have purchased theirfirst residential home with mortgage loans (paid off or not) will be subject tothe terms of second home mortgage. The policy, complying with the spirit of theNotice, will not only curb unreasonable housing demand, partly coming fromleveraged speculation, but also satisfy residents’ need to improving livingconditions.
Q: Why do youput Housing Provident Loans under the regulation of the Notice?
A: Both commercial mortgages and HousingProvident Loans are liabilities of residents, broadly speaking, all usingpublic resources. In case of market fluctuations, they will be exposed to thesame risks. Hence, a second home mortgage applicant having purchased his or herfirst residential home with a Housing Provident Loan shall be subject to theregulation of the Notice.
Q: How do you effectivelyapply the spirit of the Notice and the Supplementary Notice?
A: In order to ensure the execution of theNotice, the Supplementary Notice further stipulates that commercialbanks shall earnestly fulfill their informative obligation and require loanapplicants to provide truthful certification of their properties, income,residence and tax payments. If applicants are found to have provided falseinformation and certifications, no commercial banks shall accept theirapplications. For those employers proved to have provided false certifications,no commercial banks shall accept their certifications any more. In order tosupport commercial banks’ inquiries of loan applicants’ creditworthiness,penalize the providers of false information, and prevent financial risks, thePBC has begun to adjust and improve the PBC Enterprise and Individual CreditInformation Database in accordance with the spirit of the Notice.
The PBC and CBRCwill pay great attention to the execution of the Notice and theSupplementary Notice, and will launch spot examinations on commercial banksin the future. The organizations and individuals who violate the regulationswill be penalized, in order to ensure that all the policies will be fullyenforced.
