Resolving dilemmas: Restructuring paths of non-performing real estate projects

The main regulatory indicators on the banking industry for the second quarter of 2018, which the China Banking and Insurance Regulatory Commission released on 13 August, show that the total non-performing loan balance of commercial banks as of the end of the second quarter stood at RMB1.96 trillion, increasing by RMB182.9 billion from the end of the previous quarter. The NPL ratio of commercial banks rose 0.12 percentage points from the end of the previous quarter to 1.86%. Generally, there was an uptrend in NPLs.

Real estate accounts for a large proportion of collateral securing NPLs. Therefore, the capacity for disposal and revitalization of real estate projects largely affect the disposal effect of non-performing assets. At the same time, the Chinese real estate market has entered the era of co-existence between new project constructions and stock assets renewals. Restructuring and revitalization of stock real estate assets have become necessary to resolve the dilemma of non-performing real estate projects, as well as the purpose of integration of social resources.

With the introduction of a series of stringent regulatory policies, such as the Capital Management Measures for Financial Asset Management Companies (Trial Proposal) implemented on 1 January 2018, and the deepening of supply-side structural reforms, asset management companies are increasingly inclined to “return to the original mission” and “focus on the main business”, while restructuring of non-performing real estate projects is one of the focuses of their main businesses.

Zhao Jiajia is a partner and Qu Xin is an associate at Merits & Tree Law Offices