Amendments to Policies on Foreign Investment in the Chinese Real Estate Market
By Yuling Zheng, Shimin Law
On August 19, 2015, the Ministry of Housing and Urban-Rural Development, the Ministry of Commerce, the National Development and Reform Commission, the People’s Bank of China, the State Administration for Industry and Commerce, and the State Administration of Foreign Exchange jointly released the Amendments to Policies Concerning Access by and Administration of Foreign Investment in the Real Estate Market (Jian Fang  No.122, the “New Policies”). The New Policies have modified the former Opinions for Regulating the Access by and Administration on Foreign Investment in the Real Estate Market (Jian Zhu Fang  No.171, the “Former Policies”) to relax the restrictions on foreign investment in the Chinese real estate market.
Detailed information is as follows: General Descriptions of the New Policies
The information in the table above may appear somewhat abstract to international real estate investors and developers. The following example analyzes the rule changes using the case of a foreign investment of USD $400 million in the development of a residential district in China.
Under the Former Policies, the foreign investor would have been required to inject at least 50% of the registered capital of a project company. For a project company with a registered capital of USD $400 million, the investor would have needed to inject at least USD $200 in full before it might borrow loans from a bank. Once the establishment of the project company was approved, the investor still needed to complete the pre-filing procedures with the Ministry of Commerce. Until then, the company was not allowed to conduct basic business activities such as foreign exchange registrations, currency exchanges and settlements, or sales of capital items.
Under the New Policies, the registered capital of a project company founded by a foreign investor for developing the residential district needs only to be one-third of its total investment. That is, USD $120 million. The project company may borrow money from banks as long as it obtains the Certificate for Use of State Land and ensures that the project development capital reaches 35% of the amount of the total project investment. This means that the project company no longer needs to pay the registered capital of USD $200 million before it obtains loans from banks, which reduces the waiting period before financing. After the approval of its establishment, the project company may process relevant foreign exchange registrations directly with the banks without pre-filing procedures with the Ministry of Commerce, which saves the company at least 2 to 3 weeks of time.
In 2006, the Chinese government restricted foreign capital from entering the real estate market to control the influx of “hot money” in the appreciation period of the RMB, so as to prevent a sudden crush of the Chinese financial system caused by a large amount of “hot money” outflow in the depreciation period of the RMB. This legislative background of the Former Policies no longer exists in 2015 when the RMB continues to depreciate. That is one of the reasons behind the New Policies. Exactly how much of an increase in the foreign investment in the Chinese real estate market the New Policies will be able to attract is yet to be seen.
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published: November 2015