Banks allowed to fund
indebted properties

Ruling helps ease developers’ debt burden

The Central Bank (BDL) has issued a ruling that allow banks to provide loans to real estate companies that wish to purchase built properties to help alleviate the debt burden of some real estate developers.

The ruling allows real estate developers that are unable to sell their stock in order to meet bank installments to sell the entire project to a company that has the financial ability to wait for better market conditions.

The construction project of the property to be purchased should be already benefiting from bank financing. The construction loans should be outstanding and represent at least 50 percent of the property’s value. Priority should be given to the repayment of the old loan from the proceeds of the purchase transaction. The real estate firm buying the property should resell the property within ten years.

BDL’s new ruling amends a previous decision that prohibited banks from financing purchases of properties for the sole purpose of reselling, i.e. for speculative purposes.

The BDL decision stipulates that the credit to be granted to a company to buy the built property should not exceed 60 percent of the price of the property, as the company should pay 40 percent of the property’s cost from its own resources.

The ruling requires banks to provide loans to the real estate companies “at arm’s length”, keeping their distance from the company operations. It also prohibits banks from starting or taking shares in companies for the purpose targeted by the new BDL ruling.