China's Central Bank Tightens Real Estate Lending

By Matt Adler and Chen Dafei, Clifford Chance, Beijing

For months, market observers have expressed concern over a real estate “bubble” developing in China's major cities, particularly in Shanghai and Beijing. Even as prices have begun to decrease in many sectors of the luxury housing and commercial real estate markets, new construction projects continue to appear on the skyline. At the same time, banks in China have not flinched in their willingness to back highly leveraged real estate development projects. Many observers question whether demand can possibly keep pace with supply. With China's banks already plagued by the high level of non-performing loans from decades of policy-driven lending to state-owned enterprises, it is no surprise that banking regulators have taken notice recently of risk concentration in the real estate sector. In June, the People's Bank of China (the PBOC, China's central bank) published its Further Strengthening the Administration of Real Property Credit Business Circular.¹ The Circular re-emphasizes old guidelines _ and sets out some new provisions _ for real estate lending by domestic Chinese banks.²