The revised guideline for foreign investment, which will be published by the Ministry of Commerce in the first half of this year, will maintain the sizzling real estate sector's position within the restraint category, a source said.

"The Ministry of Commerce will be more rigorous in its approval process for real estate projects," the source, who asked not to be named, said.

His comments came after the commerce ministry said on its website that it will take a restrictive attitude to foreign investment in property projects. 

The current guideline, which has been in place since January 1, 2005, puts the development of common residential properties in the hortative category, meaning foreign investors can enjoy favorable policies in terms of taxation, entity forms and entry threshold. But foreign investments in high-end hotels, villas, office buildings, international exhibition centers and large-scale theme parks are put in the restrictive category.

China's property sector, though experiencing a slew of macro restraint measures last year, seems to have failed to drive away foreign investors.

Industry statistics show that up until February of this year, more than 4.2 billion yuan (US$543 million) of international funds has been poured into the real estate market.

"I don't think restrictive measures will change our China strategy, as we are long-term investors not short-term hot money seekers," said Wang Qian, an associate with Warburg Pincus.

The US-based equity investment firm has made several investments in the R&F, Vanke and Sunshine 100, all of which are renowned property developers in China.

"We are still looking for investment opportunities in budget hotels and discount retailers this year," she said.

Last June, six ministries jointly issued Circular 171 on Regulating the Entry into and the Administration of Foreign Investment in the Real Estate Market, which contains 14 administrative measures to tighten and further regulate investment in Chinese real estate by foreign investors.

"I've heard market news that more rigid measures on foreign investment into the real estate sector may come," said a top executive with an international real estate service company who asked not to be named. "But they are more likely to target high-end residential properties than commercial properties."

But Zhu Zhongyi, general secretary of the China Real Estate Association, said he had no idea what other restrictions might be introduced.

(China Daily March 26, 2007)