Restrictions on Foreign Investment in the Real Estate Industry

By Dr. Philip Zhang of Boss & Young¹

The issuance of Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof (关于规范房地产市场外资准入和管理的意见) on July 11 2006 (Opinions No. 171) set thresholds for the entry of foreign capital into the Chinese real estate industry, while supplementary rules in the form of circulars have also been adopted by the government authorities. To cope with and forestall speculation in the Chinese real estate market by foreign investors, the recent regulations set out various pre-conditions which must be satisfied before an overseas entity or individual is entitled to purchase real estate in China². As a matter of principle, an overseas entity must have established branches and/or representative offices in China, and any foreign individual must have worked and/or studied in China for more than one year before they are eligible. According to the regulations, the properties to be purchased have to be designated for the buyer's business operations or personal use, and therefore they must be in line with and cannot be more than the buyer's actual needs.

To enforce this principle, any purchase of property for "self use" must be made in the true name of the buyer. When registering the title, the buyer must present the correct documents to demonstrate his or her identity and eligibility. In addition, detailed information has to be presented to the designated banks in China for effecting payment according to the Circular on Issues Relevant to Regulating Foreign Exchange Control in Relation to the Real Property Market (关于规范房地产市场外汇管理有关问题的通知) issued by the State Administration of Foreign Exchange (SAFE) and the Ministry of Construction on September 4 2006.