Hello dear, there are risks in allowing banks and real estate companies to exchange letters of guarantee for pre-sale funds. According to the financial industry on November 14, the China Banking and Insurance Regulatory Commission, the Ministry of Housing and Urban-Rural Development, and the People's Bank of China released relevant work on commercial banks issuing letters of guarantee to replace pre-sale regulatory funds.

The notice allows commercial banks to make independent decisions in accordance with the principles of marketization and rule of law and on the basis of fully assessing the credit risks, financial status, reputation risks, etc. of real estate companies, and carry out letter of guarantee replacement pre-sale regulatory fund business with high-quality real estate companies.

Real estate companies must use the pre-sale regulatory funds replaced by letters of guarantee in accordance with regulations and give priority to project construction and repayment of project debts due, etc., and shall not be used to purchase land, add other investments, repay shareholder loans, etc.

Real estate enterprises must bear the obligation to replenish the funds in the supervision account as agreed to ensure sufficient funds for project construction.

Specific relevant matters are notified as follows: 1. Commercial banks are allowed to make independent decisions in accordance with the principles of marketization and rule of law and on the basis of fully assessing the credit risks, financial status, reputation risks, etc. of real estate companies, and conduct pre-sale supervision of letter of guarantee replacement with high-quality real estate companies.

Treasury business.

2. The letter of guarantee can only be used to replace the funds within the supervision limit of the pre-sale fund supervision account established in accordance with the law.

Real estate enterprises must open pre-sale fund supervision accounts in accordance with the "Opinions on Regulating the Supervision of Pre-sale Funds for Commercial Housing" (Jianfang [2022] No. 16). The deposits and down payments paid by home buyers, mortgage loans issued by commercial banks and other forms of

The purchase money and other commercial housing pre-sale funds must be deposited directly into the supervision account.

After the funds in the supervision account reach the supervision limit specified by the housing and urban-rural development department, the real estate enterprise can apply to a commercial bank to issue a letter of guarantee to replace the funds within the supervision limit. The amount of the replacement letter of guarantee shall not exceed 30% of the amount of funds in the supervision account required to ensure the completion and delivery of the project.

%, the supervising funds after replacement shall not be less than 70% of the amount of funds in the supervising account required to ensure the completion and delivery of the project.

3. When funds are allocated and used within the supervision limit, the bank that opens the pre-sale capital supervision account (hereinafter referred to as the supervision account bank) shall notify the bank that issued the letter of guarantee of the relevant information within 3 working days. The issuing bank shall urge the real estate enterprise to report to the supervisory authority.

The account will be replenished with the remaining funds (disbursed funds × the ratio of pre-sale regulatory funds replaced by the letter of guarantee), and the amount of the letter of guarantee will be reduced accordingly to ensure that the funds in the regulatory account are never less than 70% of the funds required for project completion and delivery.

If the real estate enterprise fails to make up the balance of funds in the supervision account, the amount of the guarantee shall not be adjusted.

4. Commercial banks should reasonably determine the term of the guarantee to ensure that it matches the project construction cycle.

After the project is completed and delivered or the commercial housing project completes the initial registration of house ownership and the pre-sale fund agreement is terminated, the letter of guarantee shall become invalid accordingly.

5. Commercial banks with regulatory ratings of level 4 or below or with assets below RMB 500 billion are not allowed to carry out letter of guarantee replacement pre-sale regulatory fund business.

Commercial banks are not allowed to issue letters of guarantee to real estate companies that are major shareholders, controlling shareholders or related parties of the bank in exchange for pre-sale regulatory funds.

Non-bank financial institutions such as enterprise group finance companies are not allowed to issue letters of guarantee to replace pre-sale regulatory funds.

6. When issuing a letter of guarantee to replace pre-sale regulatory funds, commercial banks must refer to the development loan credit standards and fully assess the real estate enterprise's credit risk, financial status, reputation risk, project sales prospects and remaining value, etc., in line with its stable operations and good financial status.

High-quality real estate companies carry out letter of guarantee replacement pre-sale regulatory fund business.

For projects with complex creditor-debt relationships, many cases and disputes involved, excessive external guarantee amounts, and construction progress significantly lower than expected, letters of guarantee should be issued with caution.

If there is a relationship between the project subject and the general contractor, project risks must be fully assessed.

The full amount of the guarantee is included in the unified credit limit for real estate companies and their affiliated groups.

7. Commercial banks should prevent the risks of letter of guarantee business through guarantee deposits, counter-guarantees for real estate companies and other credit enhancement measures, accrue risk capital and withdraw risk reserves as required.

8. If a real estate enterprise provides a letter of guarantee issued by a commercial bank and requests the housing and urban-rural development department to release the corresponding amount of funds in the pre-sale fund supervision account, the supervisory account bank shall cooperate with the housing and urban-rural development department to complete the necessary review work.

The housing and urban-rural development department will issue a disbursement instruction to the regulatory account bank after research and approval.

The supervisory account bank shall allocate funds according to the allocation instructions of the housing and urban-rural development department, and reduce the account management limit by the same amount.

9. During the validity period of the guarantee, if the remaining funds in the supervision account are insufficient to pay for the project, the issuing bank shall immediately perform the advance payment and pay the difference within the limit of the guarantee after deducting the remaining funds in the account.

Once an advance payment occurs, the issuing bank must promptly take recourse measures to the real estate company to ensure the safety of the creditor's rights.

Advance funds should be fully provided for and truly classified, and no risks should be hidden.

10. All localities shall not force commercial banks to issue letters of guarantee, and shall not link the issuance of letters of guarantee with local pre-sale fund supervision qualifications.

The housing and urban-rural development departments and financial management departments should provide necessary support for commercial banks to carry out letter of guarantee replacement pre-sale regulatory fund business.

11. Real estate enterprises must use the pre-sale regulatory funds replaced by letters of guarantee in accordance with regulations and give priority to project construction and repayment of project debts due, etc., and shall not be used to purchase land, add other investments, repay shareholder loans, etc.