Despite rumors of easing, foreign investors still face tough regulatory hurdles if they wish to benefit from the recovery of the Chinese housing market. "There has been no significant change to the restrictions placed on foreign investors," said Danny Ma, director of research at CB Richard Ellis. He is pessimistic of any regulatory easing for foreign investment in Chinese real estate.
In 2006 and 2007, the Ministry of Commerce (MofCom) released a number of circulars which greatly restricted foreign investment in Chinese real estate in an attempt to cool off a property sector that appeared at risk of boiling over.
"It had a relatively dramatic impact," said Michael Klibaner, head of research for Jones Lang LaSalle in Shanghai. "The market cooled off as a result and it became much more challenging."
Foreign entities wanting to invest in local realty, as opposed to purchasing it for their own use, are required to set up a foreign-invested real estate enterprise (FIREE) such as a cooperative or an equity joint venture. FIREEs making purchases greater than US$3 million are required to contribute at least 50% equity of the total amount and must bear the burden of increased risk as approvals from local authorities must immediately be filed with MofCom. Their capacity to obtain debt financing is also restricted.
Today, this policy position remains unchanged, although the level of enforcement varies. According to Ashley Howett, a partner at Jones Day in Beijing, the regulations imposed on foreign investors in the city have been relaxed over the last four to six months.
However, this temporary reprieve appears short-lived. Klibaner said that most local governments have not followed Beijing’s lead, and that the central government’s fears of new asset bubbles is prompting a fresh round of restrictions: "We are now expecting [Beijing] to take measures to cool off the property sector, particularly the residential sector. The central bankers are starting to look at ‘hot money’ again, and may raise interest rates next year."
Nevertheless, Klibaner remained positive about the presence of foreign money in the local realty market, predicting that foreign investors would begin to set up renminbi-denominated funds that are capable of investing in property.