Newsletter
Amendments to the "Regulations Governing the Loans Secured by Real Estate Mortgages Extended by Financial Institutions" Took Effect on December 8, 2020
The Central Bank of Taiwan amended the "Regulations Governing High-Priced Housing Loans Extended by Financial Institutions" on December 7, 2020 and renamed the regulations as the "Regulations Governing the Loan Secured by Real Estate Mortgages Extended by Financial Institutions" (the "New System"). The New System took effect on December 8, 2020, which we summarize as follows:
1. New housing loan restrictions on a corporate judicial person: the maximum mortgage on the first property is capped at 60 percent of the appraised value and that on the second property (and so on) is capped at 50 percent of the appraised value. No grace period should be granted.
The New System expands restrictions on extending housing loans to corporate judicial persons to prevent natural persons from evading house and land transactions income tax by establishing a company and applying for loans in the name of such company.
The amount of the maximum mortgage permitted under the aforementioned restrictions should be calculated based on the value appraised by the financial institution or the sale price of the property, whichever is lower. Furthermore, if a corporate judicial person remortgages another property to purchase a property, the New System should apply to such remortgaging.
2. New housing loan restrictions on any natural person who buys three (or more) properties: the maximum mortgage is capped at 60 percent of the appraised value without a grace period for loan payment.
The Central Bank noticed that the number of housing loans has increased in recent years and that the terms of some of them seem less stringent, including, without limitation, high maximum mortgage, low interest rate and long grace period. Hence the New System limits the maximum mortgage and prohibits grace period.
Therefore, a financial institution which has granted a mortgage should conduct an inquiry on the borrower's property portfolio with the Joint Credit Information Center. If a natural person already owns two properties with mortgages (code "1" for purchasing real property), the New system should apply to such natural person’s third (or more) property.
3. New loan restrictions on borrowers who purchase land in a residential zone or a business zone delineated under the urban planning division: the borrowers should submit a specific construction plan and the maximum loan is capped at 65 percent of the appraised value. 10 percent of such should be reserved until the borrowers commence their construction.
The amount of maximum mortgage permitted under the aforementioned restrictions should be calculated based on the cost of purchasing the land or the value appraised by the financial institution, whichever is lower. The cost of purchasing the land should not include the expense incurred from purchasing the development right (i.e., transferring the building bulk) and the compensation and cost of demolition.
4. New restriction on a developer's inventory loan: the maximum mortgage is capped at 50 percent of the appraised value.
A developer's inventory loan refers to a real property developer’s loan from a financial institution which is secured by its real estate inventory (e.g., newly built housing units, including the land parcels thereon). The New System restricts the maximum amount of such loan in order to prevent developers from using unsold housing units as collateral to secure loans thereby increasing credit risk to banks.
According to the "Q&A on the Regulations Governing the Extension of Real Estate Mortgage by Financial Institutions", if any developer provides unsold housing units as collateral to secure a loan, the restriction on a developer's inventory loan would apply to such developer. On the other hand, if a developer provides a non-residential building to secure a loan, such developer would not be subject to the foregoing restrictions.
It is worth noting that the New System applies to high-risk borrowers and thus has limited impact on individual borrowers requiring fund to purchase their first property or a property to replace their current property.
In addition, the New System does not take effect retroactively and thus does not apply to the requests for financing applied by the borrowers to the financial institutions, and accepted by the financial institutions, on or before December 7, 2020 so as not to give rise to any dispute or affect the original financial planning of those borrowers.