Six related government departments issue new proposals.
Approved by the State Council, new proposals to regulate foreign investment in real estate have been jointly issued by the Ministry of Construction, Ministry of Commerce, the National Development and Reform Commission, the People's Bank of China, the State Administration of Industry and Commerce and the State Administration of Foreign Exchange. The new proposals are included in the Opinions on the Standardization of Access to and Administration of Foreign Investment in the Real Estate Market (hereinafter referred to as Opinions)
Officials from the above-mentioned six departments provide more information on the new proposals.
Why do the Opinions readjust the percentage of registered capital in a foreign-invested real estate enterprise? What is the new regulation?
The currently effective Interim Provisions of the State Administration for Industry and Commerce Concerning the Proportion of Registered Capital and Total Amount of Investment of Chinese-Foreign Equity Joint Ventures were issued in 1987. However, with the rapid development of the real estate industry in recent years, some of the regulations are outdated and need to be revised. In order to improve a company's risk management capability, and enrich the assets of foreign-invested real estate enterprises, the Opinions readjust the registered capital of a foreign-invested real estate enterprise with total investment of over $10 million. The registered capital of a foreign-invested real estate enterprise with total investment of over $10 million must constitute at least 50 percent of the total investment amount, compared with the previous two fifths (when the total amount of investment of a foreign-invested enterprise is between $10 million and $30 million) or one third (when the total amount is over $30 million). For foreign-invested real estate enterprises with a total investment of $10 million or less, the current registered capital to total investment ratio shall apply.
The Opinions state that foreign-invested real estate enterprises are prohibited from obtaining financing from any financial institution (both domestic and foreign) if (i) their registered capital has not been paid up in full, (ii) they have not obtained the land use certificate for the underlying development project, or (iii) the capital contributed to the development project is less than 35 percent of the total investment of the project. Does that mean that stricter policies have been taken to regulate loans to foreign-invested enterprises and foreign exchange management?
This regulation does not mean a stricter policy, but it is in an effort to keep policies regarding foreign-invested real estate enterprises in line with those of a Chinese enterprise. It is a need to stabilize the real estate market as well as a measure to prevent international hot money from speculating in the domestic real estate industry. For instance, the prescription saying that only when the three conditions mentioned above are satisfied can the enterprise obtain loans from banks is coherent with the regulations on domestic real estate enterprises. If the foreign-invested enterprises try to obtain external financing without satisfying the above-mentioned prerequisites, the foreign exchange management department should not register their external debts. Meanwhile, the designated foreign exchange banks shall not enter their foreign exchange or make payments in foreign exchange. The new proposals also prescribe that according to the requirement of the development and operating qualification management of foreign-invested real estate enterprises, the capital deposited in the foreign investor's special foreign exchange account by external institutions or persons shall not be used to develop or operate real estate if it is not shifted to the foreign exchange working capital account of foreign-invested enterprises.
