Regulations and Restrictions on Foreign Real Estate Property Purchases in China

September 4, 2013 Posted by China Briefing Reading Time: 4 minutes

Sept. 4 – China’s real estate market has seen massive development since it’s opening to private investors in the late 1990s, and in order to rein in sky-rocketing property prices the Chinese government has rolled out various regulations and policies in recent years to keep the market in check. Included in this are regulations aimed at limiting the ability of foreign individuals and enterprises to purchase real estate in the country.

The Opinions
In 2006, China released the “Opinions on Regulating the Entry and Administration of Foreign Investment into the Real Estate Market (hereinafter referred to as the ‘Opinions’),” which forbid foreign individuals and companies to directly own commercial real estate in the country and specify that foreign investment into the property market must be made though a Chinese commercial entity.

According to the Opinions, any foreign individual and entity intending to purchase real property in China for purposes other than self-use shall follow the “rule of business existence,” meaning foreign individuals and companies can only purchase real estate not for self-use in China through a foreign-invested enterprise, such as a wholly foreign-owned enterprise or a joint venture.

However, the Opinions allow the following individuals and entities to purchase properties for self-use in the country:

Branches or representative offices established in China by an overseas entity;
Foreign individuals who have worked or studied in China for more than one year; and
Hong Kong, Macau, and Taiwan residents and overseas Chinese.

The above-mentioned individuals and entities must use their real name when purchasing properties in China. Moreover, they need to go through registration formalities for the land use rights and ownership of real property with the competent authorities.

The Guidelines
In 2010, China stepped up its efforts in controlling foreign participation in its real estate market by releasing the “Guidelines on Further Regulating the Administration over Purchase of Real Estate by Foreign Individuals and Entities (hereinafter referred to as the ‘Guidelines’).” The Guidelines, co-issued by the State Administration of Foreign Exchange and Ministry of Housing and Urban-Rural Development, limit housing purchases by foreigners and impose more restrictions on the financial amounts and geographical regions of the properties.

According to the Guidelines, an overseas individual can only purchase one house for self-use and a foreign-invested enterprise with a branch or representative office can only purchase a non-residential house for business use in the city where the office is located.

Moreover, the Guidelines also require foreign individuals to present a written undertaking stating that they have no other homes under their name within China when registering with the competent authorities.

The Circular
With respect to the purchase of properties by foreign individuals and entities, China issued the “Circular on Issues Concerning the Foreign Exchange Administration of Real Estate Market (hereinafter referred to as the ‘Circular’)” in 2006 regarding the process for making payments through foreign exchanges.

The Circular provides that foreign individuals and entities shall apply with the designated foreign exchange bank for making payments with foreign currencies. The designated bank will, upon verification, settle the foreign currencies and then directly transfer the fund into the RMB account of the real estate developer.

For application with the designated bank, foreign individuals and entities need to submit the following materials:

Branches or representative offices established by foreign entities

Sales or pre-sales contract for the property;
Approval documents for the establishment of the domestic branch or representative office and valid registration certificate;
Relevant certificates issued by the competent real estate authority regarding the registration and filing of the pre-sales contract of the property signed by the domestic branch or representative office; and
A written undertaking stating that the purchased property meets the principle of self-use.

Foreign individuals who have worked or studied in China for more than one year

Sales or pre-sales contract for the property;
Identification certificates;
Valid employment contract or study certificate for more than one year;
Relevant certificates issued by the competent real estate authority regarding the registration and filing of the pre-sales contract of the property signed by the foreign individual.

Hong Kong, Macau and Taiwan residents and overseas Chinese

Sales or pre-sales contract for the property;
Valid identification certificate; and
Relevant certificates issued by the competent real estate authority regarding the registration and filing of the pre-sales contract of the property signed by the individual.

The Circular also provides that RMB proceeds gained from a real estate sale by foreign individuals and entities can only be converted to foreign exchange upon approval by the relevant foreign exchange administration bureau. The following materials shall be submitted for obtaining the approval:

An application letter for purchase of foreign exchange;
A copy of the sales agreement; and
Proof of payment of all taxes related to the property and the sale.

In addition, according to a statement issued by China’s National Development and Reform Commission in 2012, medium and long-term loans (i.e. loans exceeding one year in duration) given to foreigners by foreign banks for the purpose of home purchases will not be permitted. This statement applies to all foreign banks in China, which means foreign banks can no longer borrow money from overseas to provide medium and long-term loans to foreigners for the purposes of home purchases. However, such banks can still use their own funds to provide mortgages to foreigners. Alternatively, foreigners have the option of seeking home mortgages from domestic Chinese banks.

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