Real estate related investment products offered by PRC trust
companies have become an increasingly important alternative source
of capital for real estate developers to finance construction costs
where other traditional sources of real estate finance have been
constrained by central government policies impacting on the real
The China Banking Regulatory Commission (CBRC), the regulator of
PRC trust companies, issued Circular on Risk Warning for Real
Estate Trust Business of Trust Companies (Circular) on 12
November 2010, with a view to initiating an urgent review of the
risk controls with respect to real estate trust projects.
The Circular directed all PRC trust companies to undertake an
internal audit of their real estate trust projects as a priority
The analysis of each real estate project has to address the
Are the 'four certificates' i.e. the Land Use Right
Certificate, Project Land Use Permit, Construction Project Planning
Permit and Construction Commencement Permit, in place?
Does the real estate developer hold a class II
What is the source of the minimum capital required from the
real estate developer (i.e. 50% of the total investment) to
complete the real estate project?
What is the source of the first repayment to the trust
Are the mortgage, pledge and other guarantee measures
What risk management plans have been devised?
CBRC Audit and Inspection
The Circular requires CBRC's local offices to strengthen
their supervision of the compliance and risk control measures
adopted by PRC trust companies. It requires CBRC local offices to
assess each real estate trust product, based on the internal audit
of the trust companies.
Trust companies are required to cure any problem discovered
during the audit and inspection process. Penalties may be imposed
for any violations. All CBRC offices were required to report the
result of the inspections, and any penalties imposed, to CBRC on or
before 20 December 2010.
The CBRC local offices are also required to urge trust companies
Exercise due diligence in selecting partners when conducting
real estate trust business
Moderate growth and expansion
Strengthen the supervision and control of the disbursement of
Strictly control the grant of multiple loans to large-scale
real estate groups in order to guard against potential risks in the
real estate market.
The Circular intends to ensure that PRC trust companies have
adequate measures in place to guard against the inherent risks of
providing finance for real estate projects.
This will inevitably impact on or delay the issuance of real
estate trust products.
Copyright 2011. JSM, Mayer Brown International LLP
and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a
global legal services organization comprising legal practices that
are separate entities ("Mayer Brown Practices"). The
Mayer Brown Practices are: JSM, a Hong Kong partnership, and its
associated entities in Asia; Mayer Brown International LLP, a
limited liability partnership incorporated in England and Wales;
and Mayer Brown LLP, a limited liability partnership established in
the United States. The Mayer Brown Practices are known as Mayer
Brown JSM in Asia.
This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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