To comply with the government’s policies of urban renewal and the reconstruction of old and unsafe buildings, the central bank has indicated on several occasions over the past two years that loans related to these policies are not subject to selective credit control measures. This is meant to promote the building reconstruction, thereby improving architectural resistance to earthquakes and enhancing public safety.
However, in practice, developers and other entities report that even when a project falls under urban renewal or reconstruction, they still encounter difficulties in obtaining loans from banks. This is not because loan conditions have not been met, but is due to another policy tool — loan concentration control.
Loan concentration control are measures taken by the central bank to mitigate financial risks by requiring banks to limit the amount of credit extended to specific regions, industries or specific types of borrowers to avoid a scenario where a significant portion of their lending portfolio is exposed to a single borrower. While the policy is well-intended, aimed at preventing bubbles and systemic risks, it is in conflict with the direction of the government’s urban renewal policies.
Areas such as Taipei’s Zhongshan District (中山) and Datong District (大同), as well as New Taipei City’s Banciao (板橋) and Sanchong (三重) districts are considered by banks as “high-risk” for loan concentration due to the density of old buildings and large number of urban renewal projects. Once a bank has already extended multiple lines of credit in these areas, subsequent proposed projects might be rejected by banks due to a lack of credit availability.
Therefore, although the central bank said that loans for urban renewal or the reconstruction of old and unsafe buildings would not be adversely impacted by selective credit control measures, its failure to adjust loan concentration controls leads to banks being unwilling to grant loans, in turn undermining the policy’s effectiveness.
The central bank is cutting slack for one aspect of borrowing, but tightening the reins for the other — a situation that has left developers and landowners at a loss and further exacerbates pre-existing obstacles on the path to integration and reconstruction. All entities responsible for implementing urban renewal policies, regardless of size, have been impacted. Many small and medium-sized construction companies have also faced funding shortages and been forced to halt projects.
Successful urban renewal requires more than just catchy policy slogans — it needs substantial financial support. If the government truly hopes to further urban renewal and the reconstruction of old and unsafe buildings, the central bank should not only clearly reaffirm the scope of loans related to these policies, but also review its loan concentration regulations. Exceptions should be made for construction projects that meet the requirements. Specific credit limits could also be established for lending related to urban renewal projects.
Today, more than 50 percent of Taiwan’s residential buildings are at least 30 years old. Thus, the battle for urban renewal is an urgent one that can no longer be delayed. If the country’s financial system is unable to truly give the green light on these projects, then no amount of urban renewal promotions or reconstruction subsidies would make it any easier to effectively implement these policies at demolition and construction sites.
William Hu is a property developer, and honorary chairman of the associations for the reconstruction and development of old buildings in New Taipei City.
Translated by Kyra Gustavsen
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