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Opinions on Regulating the Access to and Administration of Foreign Investment in the Real Estate Market

Opinions of the Ministry of Construction, the Ministry of Commerce, National Development and Reform Commission, the People’s Bank of China, the State Administration for Industry of Commerce and the State Administration of Foreign Exchange on Regulating the Access to and Administration of Foreign Investment in the Real Estate Market (the “Opinions”) was issued on July 11, 2006, which specifies the detailed measures for regulating access to and the operational management of foreign investment in the real estate market and regulate the purchase management of offshore individuals and institutions as follows:

●    Business presence is considered fundamental in the real estate investment market; no permission will be given to offshore investors to directly invest in the market via an overseas company. Offshore institutions and individuals shall, before the purchasing of real estate for investment, apply for and obtain a grant for the establishment of a foreign-invested enterprise and they shall purchase in compliance with the business scope specified in business registration certificates.

●    The Opinion modifies the proportion of registered capital of the foreign-invested enterprises in real estate investment area with total amount of investment over US$10 million. In the past, the registered capital should account for at least two-fifths of the total amount of investment for the enterprises with total amount of investment between US$10 million and US$30 million, while the registered capital should account for at least one-third of the total amount of investment for the enterprises with total amount of investment over US$30 million. Now, the registered capital should be 50 percent of the total amount of investment for both the enterprises of the two kinds aforesaid.

●    The Opinion specifies the procedures of the enterprises establishment and of the stock rights and projects transfer. The approval of the foreign-invested enterprises in the real estate investment area shall be based upon possession of a certificate of right to use State-owned land, meanwhile the enterprises are required to pay in self-owned capital for the transfer of stock rights or projects in a lump sum payment.

●    The Opinion regulates the remittances and loan applications of the foreign-invested enterprises in real estate investment. It stipulates that the Administration of Foreign Exchange will not approve remittances if development capital for project development of the enterprises is less than 35 percent of the total amount of investment or if there is a lack of a certificate of right to use State-owned land.

●    Regulation of purchase management of offshore individuals and institutions, specifically regulate the purchasing procedures of offshore institutions and individuals.

The branches or the representative offices of the offshore enterprises (not including the enterprises with the approval of operating the real estate investment) and the offshore individuals who work or study within the territory of the People’s Republic of China more than one year are allowed to purchase commodity houses for self-use but not for investment. The offshore institutions which have no branches or representative offices and the offshore individuals who work or study within the territory of the People’s Republic of China less than one year are not allowed to purchase commodity houses. Individuals reside in the special administrative regions of Hong Kong, Macau, the Taiwan area and the overseas Chinese are allowed to purchase commodity houses restricted in amount and acreage concerning the close relationship between them and inlanders.

Furthermore, the Opinion is the qualified offshore institutions and individuals shall purchase the commodity house by real-name registration and the capital for real estate purchase and transfer must be under audit.

Notice on Regulating Purchases of Commodity Houses of Offshore Institutions and Individuals

The Notice of Beijing Construction Committee, Beijing Municipal Foreign Affairs Office, Beijing Public Security Bureau, Beijing Industrial and Commercial Administration and Beijing Municipal Commercial Bureau on Regulating Purchases of Commodity Houses of Offshore Institutions and Individuals (the Notice) issued on February 2, 2007 on basis of the aforesaid Opinion further stipulates the acts of purchase by offshore as follow:

●    One offshore individual is allowed to purchase one commodity house for self-use only. Before the purchase one shall obtain a certificate of residence for offshore individuals within the territory of the People’s Republic of China at the Beijing Public Security Bureau. Individuals who have diplomatic privileges or immunity shall submit the purchase intention to the Ministry of Foreign Affairs of the People’s Republic of China for admission.

●    There is no restriction on the amount of units of commodity housing that can be purchased by branches or representative offices of offshore institutions. It shall submit to the relevant department its business registration certificate and a written permit that the purchased houses will be used for individual use.   

●    Qualified offshore institutions and individuals are not allowed to lease or transfer their commodity houses. If a branch or representative office closes, the offshore institution is allowed to transfer its real estate pursuant to relevant transfer procedure.

●    If the offshore institution or individual intends to purchase commodity houses for lease or sale or intend to use the self-use houses for business, it shall apply in advance for the establishment of foreign invested enterprises and gain a certificate of approval and a business license.

The Notice reaffirms the Opinion; it makes the rules more practical and local, and it plays an important role in the top-grade real estate market for restricting, to a certain degree, offshore investment. During this period, in their real estate transactions, offshore institutions and individuals shall watch out for the modification of the national relevant regulation so as to adjust investment plans in good time.