Draft partnership regulations simplify real estate investment

The draft makes it clear that overseas investors using the proposed structure will be treated as foreign investors, and hence that foreign exchange rules covering getting money into and out of China will apply. This has long been a significant issue for real estate investors, and although the new draft does not directly address the point, Blumenfeld said that it would make sense for revised rules to be issued in support of the new structure.

“There's an assumption that there's a need to provide a mechanism for foreign investors to get their money into and out of China that's not too burdensome,” he said. “If it becomes burdensome then it will be difficult to justify making the investment as a limited partner.”

Under the proposed rules, after a fund had received the necessary approvals for a given amount of foreign investment into the fund, there should be no significant further approvals necessary associated with the future payment of those amounts and their conversion into renminbi. This would make it a lot simpler for the fund to finance its operations by making periodic capital calls on its partners, as is common with offshore funds.

“The exciting thing here is that you would have a readily-available investment vehicle,” Blumenfeld said. “It would take out of the equation the need to deal with the approval process with respect to bringing money in and out of the country.”

As with all draft regulations and laws, many questions remain and it is not certain whether the final form of the rules will change significantly. There is also the issue of how the new national rules would work with the existing local rules covering four cities (Beijing, Shanghai, Tianjin and Chongqing). But whether the new rules will supersede or work alongside the local ones, a significant benefit remains: the ability to set up a true limited partnership and raise money from abroad. PT