New rules to control foreign investment in China's property market have been agreed, following concern that surging foreign speculation in the market is forcing up house prices.

 

Shanghai-based China Business News yesterday reported that six government bodies including the Ministry of Construction and Ministry of Commerce have signed an agreement on a rule to regulate overseas capital in the property market.

 

Foreign firms or individuals will have to use their real names when buying residential houses. And foreigners will not be allowed to buy residential housing that is not for their "own use or own habitation," the rule said.

 

"The measure provides a premise for the government to impose a property tax, which has been very popular in most developed countries," said Xu Dianqing, professor with the China Centre for Economic Research of Peking University.

 

"A property tax would demand a register of names, and it would be the best way to restrain speculation on the property market," he said.

 

The rule also requires foreign businesses or individuals buying Chinese property not for their own use to set up a China-registered company to handle the purchase.

 

The measures are believed to make it easier for the government to monitor the flow of overseas capital in the property market.

 

"Though there has always been a claim that foreign capital pushes up prices, both the government and research department in fact lack detailed data on this," said Yu Zhiyong, an analyst with Shenzhen-based China Merchants Securities. "The name register will give them a clearer picture."

 

Foreign-funded property firms investing more than US$10 million will need to hold registered capital equal to no less than 50 percent the value of the investment potentially a huge hurdle for firms investing tens of millions of dollars.

 

The measure is aimed at preventing those who do not have adequate capital from speculating in the market.

 

"If a foreign-funded property firm did not have adequate money to invest in the property market, it used to borrow money from Chinese commercial banks, which in turn transferred the risk to domestic banks," Xu said.

 

"With the measure setting such high entrance standards, domestic banks are protected from these potential risks," he said.

 

Xu added that the public should not take it as a restriction on foreign capital's entrance to the property market.

 

According to the rule, investors with registered capital of under 35 percent of the total value of a project, or who failed to obtain a land-use certificate, will not be allowed to borrow from domestic or foreign lenders.

 

Transfers of projects or stakes in foreign-funded property firms, and their acquisitions of domestic property companies, will need approval from the government.

 

(China Daily July 18, 2006)