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New rules to control foreign investment in China's property market have been agreed, following concern that surging foreign speculation in the market is forcing up house prices.

Shanghai-based China Business News reported on July 17, 2006 that six government bodies including the Ministry of Construction and Ministry of Commerce have signed an agreement on a rule to regulate overseas capital in the property market.

Foreign firms or individuals will have to use their real names when buying residential houses. And foreigners will not be allowed to buy residential housing that is not for their "own use or own habitation."

"The measure provides a premise for the government to impose a property tax, which is very popular in most developed countries," said Xu Dianqing, professor with the China Center for Economic Research of Peking University.

"A property tax would demand a register of names, and it would be the best way to restrain speculation on the property market," he said.

The rule also requires foreign businesses or individuals buying Chinese property not for their own use to set up a China-registered company to handle the purchase.

The measures are believed to make it easier for the government to monitor the flow of overseas capital into the property market.

"Although there has always been a claim that foreign capital pushes up prices, both the government and research department in fact lack detailed data on this," said Yu Zhiyong, an analyst with Shenzhen-based China Merchants Securities. "The name register will give them a clearer picture."

Foreign-funded property firms investing more than US$10 million will need to hold registered capital equal to no less than 50 percent of the value of the investment, potentially a huge hurdle for many firms.

The measure is aimed at preventing those who do not have adequate capital from speculating in the market.

"Currently, if a foreign-funded property firm does not have adequate money to invest in the property market, it would borrow from Chinese commercial banks, which in turn transfer the risk to domestic banks," Xu said.

"With the measure setting such high entrance standards, domestic banks are protected from these potential risks," he said.

Xu added that the public should consider the move to be a restriction on foreign capital entering the property market.

According to the rule, investors with registered capital less than 35 percent of the total value of a project, or who fail to obtain a land-use certificate, will not be allowed to borrow from domestic or foreign lenders.

The transfer of projects or stakes in foreign-funded property firms and the acquisition of domestic property companies must be approved by the government.

(China Daily July 18, 2006)