Compliance reviews of real estate trust financing business

The term “real estate trust business” mainly refers to the act whereby a trust company, through the establishment of a trust, manages, applies and disposes of, in the trust company’s name, the real estate trust funds lawfully owned by the settlor in accordance with the wishes of the settlor for the benefit of the beneficiary or for a specific purpose and the subject matter of which is immovable property or the enterprise that operates its real estate. Among commonly seen real estate trust models are the loan-based trust model, equity-type trust model and hybrid-type trust model.

Although the real estate trust business has provided developers with various financing options, since the start of 2018, oversight of the real estate trust business has become stricter and “borderline” acts of certain trust companies will soon be subject to severe penalties. This column looks at the key points in a compliance review of a deal structure and the project company.

Review of qualifications of project company and payment of land grant premium. Pursuant to the Notice of the General Office of the China Banking Regulatory Commission (CBRC) on Issues Relevant to Strengthening the Oversight of the Real Estate and Securities Business of Trust Companies, a trust company is strictly prohibited from extending loans to real estate developers to pay the land grant premium. Accordingly, if a project company is a land reserve organization, subject to administration by list, a trust company shall not extend trust loans to it. It must be ensured that the project company has paid the land grant premium in full and to stipulate expressly that the loan may not be used to pay the land grant premium.

Wu Huijin is a partner and Mei Hanyu is a paralegal at AllBright Law Offices. AllBright’s paralegal Liu Li also contributed to the article