China Enacts Policy to Discourage Speculative Investment

In an effort to stem speculative real estate development, the Chinese government recently announced that foreign companies can only purchase property that they plan to use themselves, . The commercial property mandate matches an existing and equivalent residential rule that limits foreigners to “one residential unit per person for self-use.” Though foreign investments account for less than 0.8 percent of property development in China, the move creates uncertainty among potential investors. In a joint statement announcing the new policy, China’s Ministry of Housing and Urban-Rural Development and State Administration of Foreign Exchange said authorities would be allowed to interpret the new rules. Alfred Lau, CCIM, the CCIM Institute’s country liaison to China, believes the new restrictions will have little practical impact. ”Most sales are done directly by developers,” Lau said. Developers typically can abide by such regulations through Hong Kong subsidiaries or by creating legal entities that conform to the rules, Lau added. Limiting foreign investment is one way for China to curb inflation, experts say. China’s Consumer Price Index increased 4.4 percent to a 25-month high in October, according to the country’s National Bureau of Statistics. In addition, rising property prices continue to attract speculative capital. In October, combined commercial and residential property prices increased 8.6 percent over the same period last year.