China's Real Estate Markets: New Changes for Foreign Investment
The purpose of limiting foreign investment in real estate is:
1. To cool the surging economy.
2. To solve the problem that excessive spending on assets could ignite inflation or cause financial problems for banks if deeply indebted borrowers default on loans.
3. To control frenzied building of factories, luxury apartments and other projects that have seen cities overrun by countless construction cranes.
The regulation has resulted, in large part, that large institutional investors have increased their investment in China's real estate market and moved more toward the west and central parts of China to seek out new and more cost-effective opportunities, while many of the smaller investors have been forced to stop for a lack of opportunities.
The ways of investing in the real estate market
I. Create a joint venture with a foreign developer. Developers in China are eager to find a foreign partner due to the demands of continued competition and tighter loan restrictions by local banks. As a result, many small and medium-sized developers seek to align with a foreign partner that can provide both capital and help introduce new concepts to market. In this way, a foreign company can save a lot of time and resources to acquire the land, plus they'll get a qualified local partner as a beneficial resource.
The steps involved:
- Name approval.
- Permission from foreign trade and economic department.
- Granting of a license from the business administrative department.
- After getting the license the company must meet some general requirements before it can get a temporary qualification from the construction department. The temporary qualification lasts for one year, at which time the company is eligible to apply for full qualification according to the requirements.
II. Employ the services of a consulting company. This is considered the easiest and most convenient method for foreign companies to invest in China's property market. Here's why:
1. Investors will provide the capital to the consulting company who will then buy the rights of selling the projects from the developers. In this contract the consulting company has the right to sell the entire project before the deadline. After the deadline, if there are some houses that had not been sold, the consulting company retains the ownersip of the rest of the houses.
2. The new regulation has no influence on consulting companies, which can be used by the foreign investors to cooperate with local developers.
3. If local developers are willing to get investors in a way that won't be affected by the new regulation, consulting companies can assist them to establish a foreign branch company abroad, which can then be used to cooperate freely with foreign investors.
4. If there are any foreign holding developers, foreign investors can cooperate with them abroad. In this way, the new regulation has no influence on the developers.
How we can help
China continues to undergo a transition and we at Vinnie's World will continue to move in-kind with regard to the China property market so that we may present you with not only a suitable selection of real estate choices, but also create the opportunity for interested investors to enter the market smoothly and efficiently. Through our experience and reliable network of local channels, we can help you locate and purchase your preferred property for individual or business investment, and guide you through what would otherwise be difficult terrain.
