China’s new laws, which make it almost impossible for foreigners to buy investment properties, are opening the way for wealthy Chinese to increase their dominance of the country’s booming luxury market.
Recently the “baofa hu,” or “get-rich-with-a-bang folk,” became the marketing targets for plush housing estates like Chateau Regalia in Beijing, where “celebrities are distinguished by their privileged status,” the development’s Web site says.
“In cities like Beijing, foreigners are no longer at the top of the food chain,” said Luigi Tomba, a former Italian diplomat in Beijing who is researching China’s urban communities at the Australian National University. “The old upmarket ideal of replicating the West is now changing. Developers are applying feng shui considerations, catering not for rich foreigners but rich Chinese.”
That recent shift, fueled in part by surging local incomes and the all but flat market for foreign purchases, has analysts saying that the severe restrictions actually will have less of an effect on the market than initial media reports predicted.
While the modern concept of owning a home is barely a decade old in China, the ownership rates in many Chinese cities already match those in Western countries.
A Harvard University study showed that the owner-occupancy rate is as high as 80 percent outside Beijing’s second ring road, which traces the old inner city walls, thanks to a concerted government campaign of subsidies and incentives. In comparison, home ownership rates in Australia, Britain and the United States are all at or slightly less than 70 percent.
The new rules, announced July 24 by six core economic departments and agencies, close an investment window that had been open to foreigners for barely more than three years.
And Simon Black, a partner in the Shanghai office of the Allen & Overy law firm, believes the Chinese government means what it says. “Property ownership by foreign companies and individuals for investment is effectively prohibited,” he said.
There are some exceptions. Chinese living overseas and citizens of Hong Kong and Macao will be allowed to own second homes on the mainland. And a foreigner who has studied or worked in China for at least a year will be allowed to buy a home, but not to become a landlord.
“It will be tough for individuals to get round the restrictions, if fully enforced,” said Sam Crispin, founder of Crispin Property Investment Management in Shanghai.
And the move is expected to dampen prices at some luxury complexes, especially in expatriate enclaves in Beijing and Shanghai.
Zhang Xiping, project manager at Beijingrealestate.com, is concerned about capital growth in foreign neighborhoods around Chaoyang Park and Lufthansa Center, in the eastern part of the city. But, she added, the market’s lower and middle ranks will be largely unaffected.
Michael Hart, head of research at Jones Lang LaSalle real estate in Shanghai, echoed her comments. “Some projects that have significant foreign buyers will see some impact, but it will be very confined,” he said, noting that the rules really were designed to “soothe the fears of the local public,” rather than tackle the issues of housing affordability or economic overheating.
“It’s perception,” Hart said. “People get confused by the talk of buying by Morgan Stanley and Goldman Sachs. There’s been maybe a dozen deals that have been talked about a hundred times each.”
China does not have reliable records of foreign property investment, a deficiency that the government hopes to rectify with new monitoring rules.
Figures from the State Council showed that property investment by foreign companies grew 28 percent in the first half of this year compared with 2005. But that was from a small base and only slightly faster than the 24 percent growth for overall investment in the Chinese property market, listed at 769 billion yuan, or $96 billion, for the first half of 2006.
In contrast with the absolute ban on new foreign landlords, the new rules do not block foreign companies from building residential or commercial properties – as long as they meet equity, residence and licensing rules. “For institutions, I believe it will not be that difficult if they already know their way around the bureaucracy,” Crispin, the property manager, said.