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I apologize for saying I would live blog from the China Real Estate Seminar in SFO and then not doing so.  The material presented was so dense I could not keep up. 

In this post and over the next few days, I will try to convey some of what went on there as it really was a terrific conference for those interested in investing in China real estate.

Franklin Dennis, of the Seattle law firm of Barokas & Martin, moderated the conference and did an excellent job keeping things moving. CLB's own Steve Dickinson began the conference by outlining the various ways China's New Property Laws will affect foreign real estate investors in China.  My note taking could not keep up so I will, in separate posts, put Steve's just completed paper on the new laws on the blog. 

Qiang Li, an attorney with Los Angeles based mega-firm O'Melveny & Myers, spoke next on "Creative Strategies to Finance Your Real Estate Investment."  Mr. Li is a partner in O'Melveny's Shanghai office. 

He did a superb job explaining the complicated financing issues that arise when foreign investors spend more than $10 million to purchase or develop Chinese real property.  A copy of Mr. Li's Powerpoint presentation (in Powerpoint format) can be found here.

Mr. Li talked about how even though he is essentially a mergers and acquisitions (M&A) lawyer, because so many of the largest properties in China are ultimately held by offshore entities, the best way to handle the real estate transaction is usually for the purchaser to buy the company, not the property. 

Mr. Li began by talking about the various efforts the Chinese government has made in the last couple years to try to slow down real estate appreciation in China.  He then focused on Opinions for Regulation of Approval and Administration of Foreign Investment in the Real Estate Market, more commonly referred to as Circular 171.

Circular 171 restricts foreign investors (both corporate entities and individuals) from using offshore (non Chinese) companies to purchase and hold real estate in China.  Circular 171 now requires foreign investors investing in Chinese real estate to set up onshore (Chinese) real estate investment companies, which may be wholly foreign owned (a WFOE) or a joint venture (JV).  Circular 171 applies to all Chinese real estate other than to a residence purchased for personal use.  We previously discussed this new Chinese entity requirement in our post, "Foreign Ownership Of Real Estate In China/China's New Forex Rules."

The registered capital of such an onshore foreign invested company (the WFOE or, less likely, the JV -- collectively referred to as a Foreign Invested Enterprise, or FIE) must not be less than 50% of the total investment amount if the total investment amount exceeds US$10 million. Circular 171 also mandates that the FIE may not borrow funds unless its registered capital has been fully paid up, it has obtained the relevant land use right certificate, and its self-owned project development capital constitutes 35% or more of the total capital requirement of the construction project.

Mr. Li also touched briefly on ways investors can minimize the China real estate "cash trap" by, among other things, shareholder loans.  My knowledge of international tax is so limited I am afraid to say anything more on this for fear of getting it wrong.  The next day, Mr. Li spoke on "Exit Strategies -- Getting Your Profits Out of China."  I actually had to miss part of that talk to deal with a minor client crisis, but will link back to that presentation once I receive a copy of Mr. Li's Powerpoint on it.