Through regulations and directives in 2006 and 2007, Chinese authorities have adopted a restrictive stance towards foreign investment in real estate.  Foreign enterprises investing in Chinese real estate are required to incorporate in China.  In addition to the usual approval requirements for foreign enterprises, foreign-invested real estate enterprises (FIREs) are subject to the following restrictions:

1. After a local commerce agency has approved the establishment or expansion of a foreign-invested real estate enterprise, that local agency must seek approval from  a local commerce agency at higher level.  Before, approval from the Ministry of Commerce was required.  Since July 2008, that task has been delegated to the provincial commerce agency.  The Ministry of Commerce will randomly review provincial-level decisions.  Regulatory authorities have been slow to approve foreign investment in real estate, particularly for wholly foreign-owned enterprises and in larger cities.  There is no time limit on how long the approval process can take.  Furthermore, foreign investors are not allowed to circumvent these requirements through acquiring Chinese real estate companies.

2. FIREs may not use offshore debt financing. They may obtain financing from onshore sources, but those FIREs with total investment amounts equal to more than USD$10 million may only use debt to fund up to 50% of its total investment amount.

Many hope that provincial commerce agencies will process applications faster and be more flexible than their national counterpart did.  However, because the basic government policy of restricting foreign investment in land resources and cooling housing prices is unchanged, investing in real estate in China will likely remain difficult for foreign-invested enterprises.  Thus, foreign companies should look into conducting acquisitions offshore if possible.  If not, advice from legal counsel and consultants will be necessary to improve one’s chance of success.

Relevant laws/regulations:

Notice of MOFCOM Governing Filings of Foreign Investment in the Real Estate Sector (July 2008)

Circular of the General Affairs Department of SAFE on the Distribution of the List of the First Group of Foreign Invested Real Estate Projects which has Filed with the Ministry of Commerce (July 2007)

Notices Governing Further Strengthening and Regulating Approvals and Supervision of Direct Foreign Investment in the Real Estate Sector (May 2007)

Opinions Governing the Market Access and Administration of Foreign Investment in Chinese Real Estate Market (July 2006)