New policy hinders mortgages for foreigners

The policy “will not have the impact of cooling the market, we are talking about 2% or 3% of the market here,” said Joel Rothstein, a partner at Paul Hastings in Beijing specialising in Asia real estate. The limited impact is easy to enforce though as banks in China are centralised. The NDRC is providing one of several measures that will help China's property market slow down.

In 2006, the NDRC released Circular 171, which limited purchases of property to foreigners who are resident in China for at least one year. However, unlike the new policy, the Circular was hard to enforce as it was dependent upon local jurisdiction's ability to apply it rather than a centralised system. “The policy will definitely be enforced, because it's easier to administer,” said Rothstein.

“The market is at a transition point. As the government tries to cool the market, it will be a balancing act for them,” said Rothstein, who pointed out that the government cannot strangle the market but needs to loosen part of it for first-time buyers. Future policies may include incentives such as reduced mortgage rates. The desire for Chinese policy makers to create affordable housing is coming true.