Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof

(Issued by the Ministry of Construction, Ministry of Commerce, National Development and Reform Commission, People's Bank of China, State Administration for Industry and Commerce and State Administration of Foreign Exchange on July 11 2006.):

Jian Zhu Fang [2006] No.171

People's governments of the provinces, autonomous regions and municipalities directly under the central government, and the ministries, commissions and agencies of the State Council:

Since the beginning of this year, investment in the real property sector in China by foreign business entities has increased quite rapidly and the purchase of real property by foreign organizations and individuals has also been quite brisk. With a view to promoting the healthy development of the real property market, following the approval of the State Council, we hereby set forth our opinions on regulating the entry of foreign investment into the real property market and the administration thereof as follows.

1. Regulating the Entry of Foreign Investment into the Real Property Market

(1) When a foreign organization or individual wishes to invest in or purchase real property in China not for its/his/her own use, it/he/she shall comply with the principle of having a commercial presence by applying to establish a foreign-invested enterprise in accordance with provisions on investment in real property by foreign business entities. The foreign organization or individual may only engage in the relevant business within the approved scope of business after obtaining the approval of the relevant departments and carrying out the relevant registration procedures.

(2) A real property enterprise invested in and established by a foreign business entity with a total investment of
US$10 million or more may not have registered capital of less than 50% of its total investment. If the total investment in such an enterprise is less than US$10 million, current provisions shall continue to apply in respect of its registered capital.

(3) When a foreign-invested real property enterprise is established, its establishment shall be subject to the approval of, and the registration procedures therefor carried out with, the competent commerce department and administration for industry and commerce in accordance with the law, which shall issue to it a Foreign-invested Enterprise Approval Certificate and Business Licence for a term of one year. After paying in full the grant fee for the leasehold, the enterprise shall carry out the application procedure for a State-owned Land Use Certificate with the land administration department on the strength of the aforementioned documents and then, on the strength of the State-owned Land Use Certificate, it shall be issued a formal Foreign-invested Enterprise Approval Certificate by the competent commerce authority and a Business Licence with a term of operation identical to that of the Foreign-invested Enterprise Approval Certificate by the administration for industry and commerce. The enterprise shall then carry out tax registration procedures with the tax authorities.

(4) The competent commerce department and other departments shall examine and approve equity and project transfers by foreign-invested real property enterprises and acquisitions of domestic real property enterprises by foreign investors in strict accordance with relevant laws, regulations and policies. Investors shall submit guarantees for their performance of the State-owned Leasehold Grant Contract, Construction Land Use Planning Permit, Construction Project Planning Permit, as well as their State-owned Land Use Certificate, proof of the record filing of their amendment issued by the competent construction (real property) department and the relevant proof of tax payment issued by the tax authorities.

(5) If a foreign investor acquires a domestic real property enterprise by way of an equity transfer or otherwise, or acquires the equity of a Chinese party to an equity joint venture, it shall duly make arrangements for the settlement of the staff and workers, dispose of bank debts and use its own funds to pay the entire transfer price in one lump sum. Foreign investors that have records of improper activities shall not be permitted to engage in the foregoing activities in China.

2. Strengthening the Administration of the Development of and Dealing in Real Property by Foreign-invested Enterprises

(6) Foreign investors that wish to invest in real property but do not have a Foreign-invested Enterprise Approval Certificate and Business Licence may not develop or deal in real property.

(7) If the registered capital of a foreign-invested real property enterprise has not been paid in full, or the enterprise has not obtained a State-owned Land Use Certificate, or the paid-in capital of a development project is less 35% of the total investment of the project, the enterprise may not take out domestic or offshore loans and the foreign exchange control department will not approve the settlement of foreign exchange in connection with its foreign exchange borrowings.

(8) The Chinese and foreign investors to a foreign-invested real property enterprise may not in any manner specify in the contract, articles of association, equity transfer agreement or other document terms that guarantee a fixed return or a fixed return in a disguised form to either party.

(9) Foreign-invested real property enterprises shall comply with real property laws, regulations and policies, strictly perform the provisions of their land grant contracts and abide by the time limits and conditions approved in their planning permits. Relevant departments shall strengthen their oversight of the development, sales and other such business activities of foreign-invested real property enterprises. If they uncover such violations of laws or regulations as the hoarding of land and housing resources, the artificial driving up of real property prices, etc., they shall investigate and severely deal with the same in accordance with document Guo Ban Fa [2006] No.37 and other relevant provisions.

3. Strict Control of the Purchase of Real Property by Foreign Organizations and Individuals

(10) Branches, sub-branches and representative offices set up in China by foreign organizations (excluding enterprises that have been approved to engage in real property business) and foreign individuals who are to work or study in China for more than one year may, in line with their actual needs, purchase commodity premises for their own use or their own residence, but may not purchase commodity premises that they will not themselves use or reside in. Foreign organizations that do not have a branch, sub-branch or representative office in China and foreign individuals who are to work or study in China for less than one year may not purchase commodity premises. Residents of Hong Kong, Macao and Taiwan and overseas Chinese may, in line with their personal needs, purchase commodity premises in the mainland of a certain area for their own residential purposes.

(11) Qualified foreign organizations and individuals that wish to purchase commodity premises for their own use or for their own residence must do so using their true names and, on the strength of valid documentation (which here and hereinafter shall mean, for a foreign organization, the proof issued by the relevant departments of the Chinese government evidencing approval for the setting up of an establishment in China; and for a foreign individual, proof evidencing approval for him/her to work or study in China), carry out the relevant leasehold and housing title registration procedures with the competent land and real property department. The real property title registration department must carry out the title registration procedures for foreign organizations and individuals in strict accordance with the principles of own use and own residence, and may not grant registration to unqualified organizations or individuals.

(12) The foreign exchange control department shall verify the inward remittances of funds and the settlement of foreign exchange of foreign-invested enterprises, foreign organizations and foreign individuals made in connection with the purchase of real property in strict accordance with relevant provisions and the requirements of these Opinions. Qualified foreign-invested enterprises, foreign organizations and individuals shall be permitted to make such remittances and effect foreign exchange settlement. With respect to renminbi proceeds derived from the transfer of relevant real property, the purchase of foreign exchange in connection therewith and the remittance thereof out of China shall only be permitted after such procedures as a legal compliance review and confirmation, the payment of taxes in accordance with provisions, etc. have been carried out.

4. Further Strengthening and Implementation of Regulatory Responsibilities

(13) All local people's governments, particularly those of municipalities, shall duly take responsibility for, and pay close attention to the problems that may arise due to the current inflows of foreign investment into the real property market, further strengthen their guidance and effectively assume their regulatory responsibilities. Local authorities may not issue preferential policies aimed at foreign-invested real property enterprises without authorization, and where such preferential policies have been issued, the same must be screened, reviewed and rectified. The Ministry of Construction, Ministry of Commerce, National Reform and Development Commission, Ministry of Land and Resources, People's Bank of China, State Administration of Taxation, State Administration for Industry and Commerce, China Banking Regulatory Commission, State Administration of Foreign Exchange and other relevant departments shall formulate relevant operational rules in a timely manner, strengthen their guidance and regulatory inspections of the implementation by local authorities of policies regulating the entry of foreign investment into the real property market and the administration thereof and investigate and deal with, in accordance with the law, unauthorized reductions of the percentages of the registered capital of enterprises or the capital of projects and other violations of laws and regulations arising due to lax administration. Furthermore, the efforts invested in the investigation and handling of illegal cross-border real property transactions and illegal foreign currency conversions shall be further intensified.

(14) The mechanism for market monitoring and analysis shall be improved. Relevant departments, such as the Ministry of Construction, Ministry of Commerce, National Bureau of Statistics, Ministry of Land and Resources, People's Bank of China, State Administration of Taxation, State Administration for Industry and Commerce, State Administration of Foreign Exchange, etc., shall establish a sound system for monitoring information on the flow of foreign investment into the real property market and improve the network that provides information on foreign investment in real property. Relevant departments shall strengthen their coordination and cooperation, intensify the monitoring of cross-border capital movements and realize as soon as possible the sharing of statistical data on foreign investment in real property.