Beijing cools to foreign inflows

BEIJING: The total number of foreign-invested real estate enterprises approved by the mainland government fell 39% to 78 last month, after it tightened the flow of foreign investment into the property sector.

Among the 78, 34 were newly  established, down from 55 in December, and 38 involved capital increases or mergers and acquisitions — down from 68 in December, according to an analysis of governments statistics by law firm Baker & McKenzie.

An overseas investor wishing to purchase real estate for commercial purposes on the mainland must  establish a foreign-invested real estate enterprise, also known as a FIREE, because direct offshore ownership of land use rights is not permitted.

Rico Chan, a partner in the firm's Hong Kong office, said a central government notice requiring local authorities to closely monitor capital  inflows into real estate had contributed to the declines. The notice,  announced in December, was seen as a mechanism to slow down foreign investments in the property sector. The notice did not introduce any fundamental change to regulations for foreign investment in mainland property. But it called for greater scrutiny and tighter control by  national and local authorities under the current approval regime, Baker & McKenzie said.

Some real estate fund managers also felt the results of the tightening.

"It is very difficult to even set up a non-property related wholly owned foreign enterprise. Some sell-side  analysts told me remittances from offshore property developers are being tightened," said a fund manager who asked not to be named.

The regulatory regime for recording foreign-invested real estate enterprises was first established in May 2007 by the Ministry of Commerce and the State Administration of Foreign Exchange, Baker & McKenzie said. It was part of a scheme of regulatory measures introduced to monitor and control foreign investment in the real estate sector, at a time when the central government considered it to be overheated. This regime controls all types of foreign capital inflow  injected into real estate for purposes such as the setting up of new entities, capital increases and mergers and acquisitions.

Chan also attributed the decline in January to the introduction of the latest set of policies aimed at cooling down demand in the property market, which had apparently made short-term investors more hesitant. — SCMP