CHINA / National

China regulates foreign investment in property sector
Updated: 2006-07-24 15:40

China issued on Monday new proposals to regulate foreign investment in its real estate sector.

The proposals include an increase in the ratio of registered capital in property developers' overall investment and restrictions on residential property purchases by foreign institutions and individuals.

They are part of the government's efforts to regulate China's real estate market and to improve the efficiency of foreign investment.

The proposals have been jointly issued by the Ministry of Construction, the Ministry of Commerce, the National Development and Reform Commission, the People's Bank of China, the State Administration of Industry and Commerce and the State Administration of Foreign Exchange.

The proposals also provide details on revised regulations regarding building projects, share structures, loans and foreign exchange sales of foreign-invested real estate enterprises.

According to the proposals, foreign institutions establishing branches or representative offices in China and individuals working or studying in China for more than one year can purchase apartments for their own use.

The proposals also require local governments to monitor foreign investment entering China's real estate market.

There is some speculation going on in China's real estate market, said Andy Xie, an economist with Morgan Stanley in Hong Kong.

He says a combination of low interest rates and expectations of further appreciation of the renminbi have caused torrents of overseas money to flow into China's real estate sector.

The new proposals will regulate foreign financial investors by raising the thresholds for foreign investors establishing enterprises or foreign institutions purchasing residential properties, said Xie.

Wang Xiaoguang, professor with the Macroeconomics Division of the NDRC's Institute of Economic Research, said the "more than one year" stipulation for individual buyers will remove small speculators from overseas.

China has taken a series of measures this year to control the real estate market in response to concerns about excessive foreign investment in this sector, which has absorbed the most foreign investment in China.

Newly established foreign-invested real estate enterprises increased by 25.4 percent in the first half of this year, compared with the same period last year. The amount of foreign capital actually used was up 27.9 percent.

Foreign exchange sales of foreign institutions and individuals for purchasing commercial housing have more than tripled in the first quarter.

Yin Bocheng, a professor with the Fudan University, said it is a common international practice to try to eliminate real estate speculation by restricting foreign investment flowing to the sector. He stated that China has not raised the threshold for foreign investment in the real estate market since 2002.

As fears spread that China's economy is overheated, controls on the real estate sector are seen as a way to cool it, said Xie. The economy here grew by 10.9 percent in the first half of the year compared to the same period last year.