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Financial Supervisory Commission Proposed to Relax the Threshold for Commercial Banks to Invest In Non-Self-Use Real Estate

Yi-Jiun Su/Christina Hsuan Chiang


Commercial banks were reluctant to join the urban renewal projects with self-owned real estates in accordance with the Urban Renewal Act in the past because the rebuilt real estate often does not comply with the following condition: (i) "a substantial portion of rebuilt real estate is for self-use" as referred to in Subparagraph 3, Paragraph 2, Article 75 of the Banking Act ("Act") and Paragraph 1, Article 3 of the Regulations Governing Investment in Real Estate by Commercial Banks ("Regulations") which means that at least 50% of the usable floor area of the rebuilt real estate shall be for the banks' self-use; or (ii) "for self-use in the near future" as referred to in Subparagraph 2, Paragraph 2, Article 75 of the Act and Paragraph 3, Article 3 of the Regulations which means for a term of up to two years.
 
In order to increase the banks' motivation to participate in urban renewal and to meet the banks' needs to invest in real estate, the Financial Supervisory Commission (FSC) initiated the amendment to the Regulations and announced the draft amendment to the Regulations on 29 December 2016 ("Draft Amendment"). According to the Draft Amendment, the FSC proposed to enact Article 4-1 of the Regulations, according to which the banks' self-use ratio of the real estate rebuilt in an urban renewal project in accordance with the Urban Renewal Act should be at least 20% provided that such ratio should not be less than the self-use ratio before the reconstruction, which lowers the aforementioned 50% self-use ratio. Furthermore, the FSC proposed to add a proviso to Paragraph 4, Article 3 of the Regulations, according to which the maximum term of the condition "for self-use in the near future" prescribed in Subparagraph 2, Paragraph 2, Article 75 of the Act will be extended to up to seven years for banks that acquire land and construct the building itself.
 
It is generally anticipated that since the Draft Amendment relaxes the threshold for commercial banks to invest in non-self-use real estate, it will stimulate the banks' willingness to contemplate on participating in urban renewal projects, thereby achieving the goal of expediting urban renewal.
 

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