China Further Relaxes Foreign Investment in Real Estate Market

The foreign-invested real estate market in the People’s Republic of China (“PRC”) has been heavily regulated by the government of PRC since 2006 due to concerns of rapid price increases. However, the situation has changed with a cooling property market. In 2015, the PRC government issued several measures to ease the restrictions, signaling the government’s intention to encourage foreign capital inflow to boost the domestic real estate market.

The recent relaxation on foreign direct investment in the real estate market introduces the following changes:

The Catalogue of Industries for Guiding Foreign Investment (2015 Revision) (“Catalogue 2015”)

The Catalogue 2015 removed the real estate-related industry from the restricted category in The Catalogue of Industries for Guiding Foreign Investment (the “Catalogue”), which indicates that “the development of pieces of land (limited to Sino-foreign joint ventures and Sino-foreign cooperative enterprise), the construction and operation of high-ranking hotels, villas, high-class office buildings and international exhibition centers and the real estate transactions in the secondary market or real estate intermediary company” are currently categorized as permitted in the Catalogue. These amendments illustrate the tendency of adjustment in the real estate industry by the PRC government macroscopically.

In addition to the above, the 2015 Catalogue deleted the provision that “unless otherwise provided by specific regulations or policies of the State Council, such provisions or policies shall apply,” which indicates that thereafter, only “laws and regulations” can impose restrictions on the inbound investments. This would greatly increase the transparency and predictability of the PRC laws in respect to foreign investment in the real estate market.

The Circular on Revising Relevant Policy on the Entry of Foreign Investment into the Real Estate Market and the Administration Thereof (“Circular 122")

Circular 122 relaxes certain controls imposed by The Circular Regarding the Regulatory of Access to and Control of Real Estate Market by Foreign Investment (“Circular 177”). The changes are set forth in the following table:

	Circular 177	Circular 122
Equity Requirement: The ratio between the registered capital and total investment of foreign-invested real estate enterprises (“FIREE”) for any real estate investment of greater than USD 10 million	Subject to 1:2 ratio	Subject to 1:3 ratio
Requirements on FIREE for borrowing onshore loans, offshore loans and covert foreign loans into RMB	Its registered capital has been fully paid It has obtained the land use right certificate Funds injected in the real estate project are equal to 35 percent or more of the project’s total investment	It has obtained the land use right certificate Funds injected in the real estate project are equal to 35 percent or more of the project’s total investment
Time restriction on the China branches and representative offices of a foreign company/entity and a foreign individual who has worked or studied in the PRC to become eligible to purchase residential property for self-use/self-occupation	One year	No restriction
The authority with whom FIREE needs to lodge foreign exchange registration	State Administration of Foreign Exchange	Banks in PRC

The Circular on Further Improving the Record Filing of Foreign Investment in Real Estate (“Circular 895”)

Circular 895 further simplified the administration of FIREEs by cancelling the publication procedure for registration on the website of the Ministry of Commerce. The cancellation of publication procedure for registration significantly shrinks the timeline for the completion of foreign investment into a real estate project.

Even though these regulations do not address such issues as foreign debt registration, foreign debt conversion and foreign exchange conversion for the funds in the capital account, they may be viewed as an indication that the government is making its effort to ease the restrictions gradually, with the anticipation that more relaxation would follow soon.

Written by Lan Yu.
Please contact Lan Yu at LYu@duanemorrisselvam.com for more information.

The content of this update is of general interest and is not intended to apply to specific circumstances. The content should not therefore, be regarded as constituting legal advice and should not be relied on as such.