China Tightens Restrictions on Real Estate Purchases by Foreigners

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Nov. 19 – A new circular recently released by the Chinese government reiterates a four-year-old regulation that limits housing purchases by foreigners and imposes more restrictions on the amount and region of the properties.

The circular, co-issued by the State Administration of Foreign Exchange and Ministry of Housing and Urban-Rural Development on November 4, clarifies that an overseas resident can only purchase one house for personal use and that a foreign institution with a branch or representative office can only purchase a non-residential house for business use in the city where the office is registered.

Compared to the “Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof” released four years ago that emphasized foreigners should show they have more than one year residency in China to purchase property, the new circular added the maximum quantity of home purchases for individuals, forbade overseas institutions without an office registration in China from buying property, and even determined the category of property (non-residential) they can buy.

Most economists believe the circular is another measure to stabilize the property price and curb speculative capital inflow. However, most real estate developers believe this is not the best policy for the country.

Han Shitong, vice president of the China Urban Operation and Commercial Property Management Research Center, worries the new policy for foreign institutions will direct foreign capital towards commercial property development, instead of procurement. The modified investment mode will result in an excessive supply of commercial property and bring about an imbalanced market between developers and buyers.

Yang Hongxu, minister of the Comprehensive Research Department of Shanghai Yiju Real Estate Research Center, says the new policy will not stop overseas investors from indirectly purchasing real estate in China through procuring local company shares.

China’s real estate market is having a tough time under the country’s increasingly tighter regulations. Last month, 400 small-sized real estate agencies in Shanghai had to close their doors.

Some real estate developers believe that while foreign investment in China’s property market may have led to the real estate bubble, it contributed to the overall development of Chinese cities at the same time. The restriction on the property investment by foreigners may not be the most effective way to solve China’s current economic issues.