Policy changes for foreign investment in real estate in China

By issuing the Opinions on Regulating the Access to the Real Estate Market by Foreign Investors and the Administration Thereof (Document No. 171) by the Ministry of Construction, Ministry of Commerce and other ministerial level authorities in July 2006, China turned to strictly restrict foreign investment in real estate. Document No. 171, the first shot in such restriction, and the series of subsequently issued policies are known as the “order restricting foreign investment”. Various ministerial level authorities subsequently issued a series of complementary policies strengthening the restrictions, comprehensively containing foreign investors’ access to the Chinese real estate market.

However, with the slowdown in the Chinese economy, China’s attitude towards foreign investment in real estate has also shown a marked change, witnessed by a gradual loosening in the previously issued restrictive policies. In November 2015, the system of recordal of foreign investment in real estate was abolished.

Restrictive period. In 2003, the real estate industry was formally recognized in state policy as a pillar of the national economy and from this point real estate prices began a sharp rise which lasted five years. Stimulated by Renminbi appreciation expectations and supernormal profit, offshore funds began to pour into the Chinese real estate industry in 2006, with a not inconsiderable amount being international fluid capital, i.e. so-called “hot money”, running after short term returns. This further inflamed the domestic real estate market, accompanied by a continuing increase in the state’s foreign exchange reserves, excess domestic liquidity, a rise in inflation and the beginning of an asset bubble.