[photopress:property_property_sector.jpg,full,alignright]China’s property sector took off in 1998, when Chinese citizens were granted the right to buy their own homes. Since then, according to an online market overview published by Property Frontiers, China’s property sector has seen an average rate of growth of 22% a year, fueled substantially by a large amount of investments flowing into the market,
The phenomenon has sparked fears that a property bubble is being created in China.
Consequently, the Chinese government placed restrictions on foreign investment in July 2006 as part of an overall effort to control the massive appreciation seen in recent years.
Michelle Gon, senior partner at the international law firm Baker & McKenzie, said that in order for foreign investors to acquire non self-use property in China, they must incorporate and capitalize an onshore entity in China, or foreign-invested real estate enterprise (FIREE), to acquire and hold investment properties.
Additional restrictions have been placed on specific segments of the real estate industry, such as development of whole tracts of land, construction and operation of luxury hotels, resorts, office-buildings and exhibition centers and second level-real estate market transactions, Gon said. Such efforts are not prohibited by law, but investors must obtain approval from authorities on a case-by-case basis.
The debt to equity ratio for FIREEs with a total investment of $10 million has also been reduced to 50/50.
Foreign individuals who work or study in China for more than one year can purchase self-use property, or property for their own use or residence.
Foreign entities with branches or representative offices in China in operation for more than one year may also purchase self-use property.
Although restrictions have made it more difficult for foreign non-resident private individuals to invest in China’s real estate market, large institutional investors are working within the rules of the system to provide a steady flow of foreign capital to China’s property sector.
Until China’s real estate market sufficiently cools down, it is unlikely that the Chinese government will lift restrictions on foreign property investment.
Source: New Investor