BEIJING China plans to restrict purchases of real estate by foreign investors in order to reduce speculation and prevent a property bubble, a government official said Thursday.
New rules defining what type of overseas investors can buy property could be announced this month, Lin Zheying, deputy director general of the Commerce Ministry’s Foreign Investment Administration, told reporters in Beijing.
The regulations may threaten plans by investors like Citigroup and Morgan Stanley to increase holdings of Chinese real estate after prices rose 7.1 percent in Beijing through May. Prime Minister Wen Jiabao has curbed lending to cool an economy that grew 10.3 percent in the first quarter and to prevent a drop in land prices from causing loan defaults.
“The government is worried that overseas investment is bringing too much foreign currency into China and that it will cause property bubbles,” said Liu Yang, a fund manager at Atlantis Investment Management in Hong Kong. “But people are buying because they see real growth prospects and real returns from Chinese real estate.”
Policies to cool foreign property investment come amid a raft of other measures Wen is implementing to cool a credit-fueled investment boom driven by swelling inflows of foreign capital.
The International Finance News, a publication owned by the ruling Communist Party’s official newspaper, the People’s Daily, earlier this month said that the State Administration of Foreign Exchange could use “technical” restrictions, like tightening transaction settlement procedures and strengthening supervision of real estate companies receiving foreign funds or listing overseas.
With foreign investors poised to pour billions of dollars into Chinese real estate, restricting investment from overseas could help slow growth in foreign- exchange reserves and ease pressure on property prices.
“Funds from all over the world are trying to get into the Asia-Pacific, and on top of their list is China,” Guy Hollis, head of U.S. real estate consultant Jones Lang LaSalle’s investment arm. “About $30 billion in overseas funds wants to find a home in China.”
Speculation that China will let its currency gain at a faster pace increases the lure of property. China revalued the yuan almost a year ago and abandoned a peg to the dollar.
“One way that you can bet on an appreciation in the currency is to own assets in China, and real estate has been the favorite one with capital gains being pretty good,” said John Kyriakopoulos, a currency strategist at National Australia Bank in Sydney.
Overseas institutions bought property worth of $3.4 billion in China last year, the SAFE said in April. That did not include “lots” of transactions that can’t be tracked and confirmed, said Remy Chan, Shanghai-based head of markets at Jones Lang LaSalle.
Foreign investors are entering China’s property market by investing in Chinese developers or forming a locally registered entity such as a private equity fund to acquire existing properties. In some cases, foreign lenders are involved in financing such operations, said Jun Ma, head of China research at Deutsche Bank in Hong Kong.
In the past five months, international investment banks and real estate funds have announced plans to invest more than $5 billion in Chinese property.