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Bank loan rates to developers increase

(Global Times)

13:39, November 01, 2011

Real estate companies are borrowing from banks at higher-than-usual interest rates against the backdrop of tightened liquidity and sluggish sales, although analysts have said the risk to the banking system is limited.

The third-quarter financial reports of 65 A-share-listed real estate companies have been released so far, revealing that some are borrowing from banks at rates as high as 12 percent, compared to the normal lending rate of 6 percent to 7 percent.

Examples include Risesun Property, a Hebei-based real estate developer, which borrowed 450 million yuan ($70.82 million) from a local State-owned bank at an interest rate of 10 percent; and Metroland Corp, a Zhejiang-based developer that borrowed 500 million yuan from Bank of Communications at an interest rate of 12 percent.

"The rates these companies are borrowing from banks at are catching up with the rates usually offered by trust companies of 12 percent to 15 percent," Fan Jie, a trust analyst from?consultancy, told the Global Times.

"This phenomenon is mainly due to the tightened liquidity this year, " Xue Jianxiong, an?analyst?with?E-house?China, told the Global Times Monday. "A tightened liquidity means a lack of funds in all walks of life. When people are having trouble borrowing money, they can't afford to buy houses, making it hard for developers to sell. In order to keep their capital flowing again, developers choose to borrow money from banks.

"However, an interest rate of around 10 percent is controllable for banks, since loans for property developers are usually short-term, and banks are now more willing to sell wealth management products, which have a higher rate of return."

In the past two years, the issuance rate of loans secured against collateral provided by banks to developers has grown faster than that of non-secured loans, a housing analyst with Gaohua Securities told Money Week Monday.

"This shows that banks see loans to developers as carrying an increased risk, and are correspondingly being more cautious," the analyst said.

By the end of August this year, property-related loans by banks, including loans to developers and mortgages, totaled 10.4 trillion yuan. This figure accounted for 19.8 percent of all bank lending in the period.

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