The Shanghai municipal government has further restricted foreign investors from acquiring land for property development.

Under the No 16 land transfer bulletin issued by Shanghai Municipal Housing, Land and Resource Administration Bureau on December 23, deposits on land for residential use and commercial purposes can now only be paid in renminbi.

Previously, the bureau accepted four different foreign currencies - US dollars, HK dollars, Euros and Yen - as deposits at government auctions.

The move is widely seen as the latest attempt to clamp down on excessive speculation in the nation's hottest property market.

Despite subtle changes, they are expected to have a large impact on the new inflow of foreign capital, partly triggered by the expectation of further appreciation of the renminbi.

Land for industrial use, however, can still be purchased through foreign currency accounts, according to the No 17 bulletin released simultaneously.

Industrial experts and analysts said this subtle policy change was expected to make a significant impact on Shanghai's property market by containing the rush of foreign capital, which had been partially blamed for pushing up prices beyond sustainable levels.

James Macdonald, a senior manager of Savills Property Services Co in Shanghai, told China Daily: "This (move) of course will limit the capability for new investors coming into China's market to acquire land for development. But it should not have too big an impact on some of the large foreign property developers who have been operating in China for years."

These developers, he said, would have already accumulated large cash reserves in renminbi from previous profits.

"They have been in China for a long time and should have really large stockpiles of renminbi through revenue generation from the existing properties," he said.

A spokesperson for the municipal administration bureau said the department had no further comment on the circular.

"This stricter restriction on property development by foreign investors is expected to be an effective measure to stabilize housing prices in Shanghai," said Wang Shujuan, an analyst on property at Orient Securities.

Shuai Hu, an analyst on property at Haitong Securities, said that the supply and demand imbalance would remain the major factor in determining future property price movements. The stricter restriction is expected to ease pressure on prices in residential houses, he said.

"The impact of the rule change needs to be watched closely," Shuai said.

(China Daily December 27, 2007)