[photopress:real_estate_shenzhen_md.jpg,full,alignright]Foreign investors in Chinese real estate are now banned from borrowing offshore in the latest effort to tame property prices and cool the economy.
The State Administration of Foreign Exchange sent out the new rule as a circular. The idea is to put pressure on foreign investors who take advantage of lower interest rates outside China. The theory is, the less of them who invest, the less heated the market will be.
Some may find it especially difficult to fund projects as Beijing has told its banks to cut back on loans for the construction industry. The central bank ordered Chinese banks to stop lending for land purchases as far back as 2003.
Andrew McGinty, a partner at the law firm Lovells in Shanghai, said, ‘The only alternative is to fund the entire equity. But that’s not a very favored method, because your internal return on investment goes down dramatically.’
Property funds operating in China tend to borrow to fund at least 50% of a project’s value.
The new rules also increase red-tape for foreign property investors. Investors seeking to bring capital into China to set up a real estate company must now lodge documents with the Ministry of Commerce in Beijing — not just with local branches of the ministry. And that process could take a month of more.
An official of the State Administration of Foreign Exchange said, ‘What we mean is very clear: First we are targeting foreign real estate firms that are illegally approved by local governments.’
So that is the rule. Now all that remains to be seen is how rigidly it is enforced. China has applied a raft of measures to rein in property investment, including interest rate rises and rules to discourage construction of luxury homes.
Some steps have specifically targeted foreign investors, who account for less than 5% of total investment in the property sector. Foreign investors must now secure land purchases before setting up joint ventures or wholly owned foreign enterprises in China.
It seems, however, this has done little to hold back the over-heated market. China’s urban property inflation rose to 7.1% in June, compared with a year earlier.
A general view could be that voiced by Robert Lie, Asia chief executive for ING Real Estate, which has raised a $350 million fund to build housing in China. He said, ‘We are not too worried about it. Cooling measures won’t stay forever.’
Source: China Daily