Treatment of rural exposures as Commercial Property (ARS 230.0) frequently asked question

The Instruction Guide for ARS 230.0 sets out a general definition of ‘commercial property exposure’ based on whether the exposure is subject to the performance of the property market, and further states the following regarding the treatment of rural exposures:

• Rural exposures will generally not meet the definition of commercial property, unless the property has been acquired specifically for lease or resale, and where the servicing of the debt is dependent on such lease or resale (and/or the lease or resale of other properties). 

APRA considers that it would be appropriate to treat rural exposures as commercial property exposures where both of these conditions are met:

• the property has been acquired specifically for lease or resale, and
• the servicing of the debt is dependent on such lease or resale. 

Where an ADI satisfies itself that the exposure can be appropriately serviced on a principal and interest basis over a commercial term, by looking through any lease arrangement to the underlying productive capacity of the rural land based on normal seasonal conditions, then it may consider that the second condition is not met, and the exposure does not require classification as commercial property exposure for reporting purposes under ARS 230.0.