State-run banks yesterday confirmed plans to tighten land loan measures, including the introduction of punitive interest rates for failing to start construction projects on time, to help cool the property market.
The move came after the central bank last week raised interest rates by another 12.5 basis points and asked lenders to enhance risk controls on land loan applications, as real estate prices remain high though transactions have slowed after the introduction of a series of selective credit controls since June.
Liu Teng-cheng (劉燈城), chairman of Taiwan Cooperative Bank (合作金庫銀行) and a central bank board member, said his bank would review its land financial terms and add new rules in respond to the central bank’s call.
“We plan to introduce punitive interest rates on new land loans if borrowers fail to start construction projects one year after obtaining the funds,” Liu said by telephone.
The bank currently offers an average interest rate of 2 percent for land loans, but may raise this to 2.5 percent if the borrower fails to meet the one-year requirement, Liu said.
He added that his bank would finalize new, stricter rules later this month.
The one-year requirement is already in place, but had not been strictly implemented in the past, Liu said.
York Lai (賴明佑), a vice president at Hua Nan Commercial Bank (華南銀行), another state-run lender and a subsidiary of Hua Nan Financial Holdings Co (華南金控), said that the bank also planned to impose punitive interest rates on land loans later this month.
“Borrowers who fail to carry out land development plans will have to pay more interest on their loans,” Lai said by telephone. “A delay of three years or longer without compelling reasons is unacceptable.”
Lai did not elaborate on what his bank would do to deal with land speculators, but said Hua Nan Bank has been conservative in screening land loan applications.
“We rarely grant loans of more than 65 percent of the land value, while other banks cap the rate at 70 percent,” Lai said.
Lai said he agreed with the central bank on the need to rein in land financing because recent auctions of land plots in Taipei County appeared to be overpriced.
On Sept. 24, the Taipei County Government auctioned 15 parcels of land in Sinjhuang (新莊) for more than double the floor price, with one plot costing NT$232 million (US$7.4 million) per ping.
“At that cost, I’d rather seek investment products in Taipei City,” Lai said. “Hua Nan Bank will not decide land values based on their auction prices.”
The Land Bank of Taiwan (土地銀行), one of the largest land loan operators owned by the government, said its land financing rules remain the same, but might make adjustments on request.
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