[photopress:property_aparment_blocks.jpg,full,alignright]Mondaq publishes a series of excellent reports on Asian estate and legal matters. They are well worth reading in full. This is a short version of the latest bulletin.
More and more foreign investors wish to invest in China’s real estate market to benefit from capital and currency appreciation.
Accordingly, over the past year the Chinese central government has issued numerous laws, policies, and administrative regulations in an attempt to cool down the real estate market.
The most recent measures, which will also affect local developers, include the enforcement of the land appreciation tax and penalties for hoarding land.
Circular 171, which has been in place for nearly a year, requires a foreign investor intending to purchase Chinese real estate to do so through an entity established in China. Further, where a foreign investor purchases a domestic real estate company through equity transfer or by other means, it must pay the transfer fees in a lump sum using its own capital.
Circular 171 also requires a foreign-invested real estate enterprise with an investment amount of no less than RMB10 million to have registered capital of no less than 50% of its total investment amount. Where the total investment is less than RMB10 million, current regulations remain unchanged.
Circular 171 states that first a foreign investor get the formal Foreign-Invested Approval Certificate and Business License before they obtain the State-Owned Land Use Certificate.
Then there is Circular 25 which last year expressly stated that the Chinese government will strictly restrict foreign investment in China’s real estate market.
Circular 50 issued about the same time reiterates many of the principles under Circular 171 but added that foreign investors are required to purchase the land-use rights before they apply to set up a development company in China. Circular 50 confirms the requirement under Circular 171 that the guarantee of direct or indirect ‘fixed revenues’ is forbidden.
There are several more but when read together, these circulars and policies show the commitment of the Chinese government to restrict and supervise foreign investment in China’s booming real estate market, especially high-end real estate development.