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Six related government departments issue new proposals.
Approved by the State Council, new proposals to regulate foreign investment in real estate have been jointly issued by the Ministry of Construction, Ministry of Commerce, the National Development and Reform Commission, the People's Bank of China, the State Administration of Industry and Commerce and the State Administration of Foreign Exchange. The new proposals are included in the Opinions on the Standardization of Access to and Administration of Foreign Investment in the Real Estate Market (hereinafter referred to as Opinions)
Officials from the above-mentioned six departments provide more information on the new proposals.
Why do the Opinions readjust the percentage of registered capital in a foreign-invested real estate enterprise? What is the new regulation?
The currently effective Interim Provisions of the State Administration for Industry and Commerce Concerning the Proportion of Registered Capital and Total Amount of Investment of Chinese-Foreign Equity Joint Ventures were issued in 1987. However, with the rapid development of the real estate industry in recent years, some of the regulations are outdated and need to be revised. In order to improve a company's risk management capability, and enrich the assets of foreign-invested real estate enterprises, the Opinions readjust the registered capital of a foreign-invested real estate enterprise with total investment of over $10 million. The registered capital of a foreign-invested real estate enterprise with total investment of over $10 million must constitute at least 50 percent of the total investment amount, compared with the previous two fifths (when the total amount of investment of a foreign-invested enterprise is between $10 million and $30 million) or one third (when the total amount is over $30 million). For foreign-invested real estate enterprises with a total investment of $10 million or less, the current registered capital to total investment ratio shall apply.
The Opinions state that foreign-invested real estate enterprises are prohibited from obtaining financing from any financial institution (both domestic and foreign) if (i) their registered capital has not been paid up in full, (ii) they have not obtained the land use certificate for the underlying development project, or (iii) the capital contributed to the development project is less than 35 percent of the total investment of the project. Does that mean that stricter policies have been taken to regulate loans to foreign-invested enterprises and foreign exchange management?
This regulation does not mean a stricter policy, but it is in an effort to keep policies regarding foreign-invested real estate enterprises in line with those of a Chinese enterprise. It is a need to stabilize the real estate market as well as a measure to prevent international hot money from speculating in the domestic real estate industry. For instance, the prescription saying that only when the three conditions mentioned above are satisfied can the enterprise obtain loans from banks is coherent with the regulations on domestic real estate enterprises. If the foreign-invested enterprises try to obtain external financing without satisfying the above-mentioned prerequisites, the foreign exchange management department should not register their external debts. Meanwhile, the designated foreign exchange banks shall not enter their foreign exchange or make payments in foreign exchange. The new proposals also prescribe that according to the requirement of the development and operating qualification management of foreign-invested real estate enterprises, the capital deposited in the foreign investor's special foreign exchange account by external institutions or persons shall not be used to develop or operate real estate if it is not shifted to the foreign exchange working capital account of foreign-invested enterprises.
Why do the Opinions set new regulations governing foreign institutions and individuals' purchase of self-use/occupied property?
With the opening of China's economy and the gradual development of its real estate sector, overseas institutions and individuals are highly active in China's property market. But there are no clear rules and standards to regulate their presence, thereby crippling the market. China's land resources are scarce and its population is huge. China is facing land constraints. We must take a long-term view and step up supervision of property investment by overseas institutions and individuals.
According to the proposals, foreign institutions (excluding real estate operators) with onshore branches and representative offices in China and individuals who have worked or studied in the PRC for over one year may purchase self-use/occupied property on an actual need basis. These people are considered residents, whose economic activities are part of China's gross domestic product, hence enjoying part of their “natural man” rights and being allowed to purchase self-use/occupied property in the PRC. Those who have worked or studied in the PRC for one year or less can rent houses to meet their residential needs. Overseas Chinese and Taiwanese, Hong Kong and Macao residents are exempted from the one-year rule and are permitted to purchase self-occupied property in the PRC up to a certain floor area to the extent needed for living purposes.
Why must foreign institutions and individuals, who are qualified to purchase self-use/occupied property in the PRC, register with their real names when buying properties?
The real name system aims to curb speculative overseas investment and better supervise the property market as well as to improve market transparency, thereby maintaining the stability of the real estate sector. It is necessary to adopt the system, which is also applied to domestic citizens. When buying properties for their own use, overseas institutions must produce documents approving their presence in China while individuals must show effective certificate attesting to their over-one-year stay. All property rights registries will enforce the self-use/occupied property purchasing policies to the letter. Under the new policies, overseas residents who have worked or studied in the PRC for over one year are only allowed to buy one unit of commercial housing for their own use while foreign institutions (excluding real estate operators) with onshore branches and representative offices in China are permitted to purchase commercial housing for business. Real estate administration departments all around the country will further perfect the registration database of the equity market and ensure all forward commercial housing purchasing contracts are put on file. Any foreign institutions and individuals who fail to obey the regulation will not be permitted to make any house purchase.
What changes will the proposals bring to the detailed process of inward remittance and exchange settlement for housing purchases by foreign enterprises, overseas institutions and individuals?
To further regulate the foreign currency administration in the real estate sector, only commercial housing purchases that comply with the self-use/occupied property purchasing policies are allowed to go through related formalities, including foreign exchange receipt and disbursement and money order. Only after all related materials are examined and verified, and the foreign exchange transfer is settled by designated banks can overseas institutions and individuals, who intend to pay for their house by inward remittance from other countries or by foreign currency accounts, transfer money to the renminbi accounts of real estate developers. Overseas institutions and individuals are not permitted to directly remit foreign currency to real estate developers' foreign currency accounts. Overseas institutions and individuals, who have to terminate the property exchange and withdraw their prepayments for certain reasons, can transfer prepayments back to their foreign currency accounts only after the case has been investigated and verified by designated banks. Overseas institutions and individuals are allowed to transfer capital gains on commercial housing to their accounts only when the gains have been taxed and confirmed by related foreign administration departments.
(China.org.cn)
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