Commercial property

The People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) are urging rigorous credit management on commercial property projects to curb possible risks that could threaten the banking sector.

The policy will have significant impact on property developers as financing will be more difficult.

No loan will be given to developers to cover land transfer costs.
Loans for land reserve acquisition will be secured by property developers through the use of a mortgage and require a legal land use certificate.
The amount of the loan shall be less than 70% of the estimated value of the project.
The credit period will be confined to two years.
No credit of any kind will be offered to projects where land had been idle for two years or more.
Provision of credit will be more cautious to government-approved construction projects that have not started within a year after a land concession contract was signed.

This would also apply to projects where its developed land area was less than one-third of the total, or where the investment was less than a quarter of the total within a year after starting construction.
Source: China View

China´s Ministry of Commerce has authorized provincial commerce administration departments to examine and approve foreign company investment in real estate.

The commercial departments will be asked to take charge of the approval process for foreign investments in the property industry, and lower-level commerce departments are now authorized to examine material filed by foreign investors.

The adjustment aims to simplify examination procedures and improve efficiency whilst strengthening the verification process.

The Ministry of Commerce will carry out spot checks periodically on foreign-funded enterprises with investments in real estate.

Enterprises that fail to meet relevant requirements will have their forex registration and foreign capital inflow filings annulled by the Ministry of Commerce and foreign exchange administrative departments.
Source: Property Report Asia

The Chinese property market has seen house prices in 70 large and mid-sized Chinese cities rise 11% year-on-year in the first quarter according to the National Development and Reform Commission (NDRC).

Prices of new apartments jumped 11.8%, down 0.4 percentage points from the same quarter last year, while prices of second-hand flats rose 11.5%, up 1.7 percentage points.

Urumqi, capital of the north-western Xinjiang Uygur Autonomous Region, continued to top the growth list with a 25.3% increase in March. It was followed by Haikou and Ningbo, which saw property prices rose 18.3% and 18.2%, respectively.

Chinese real estate is not all good news. For example prices of new homes in Shenzhen, the southern city bordering Hong Kong, and Nanjing, capital of east China’s Jiangsu Province, fell 4.9% and 0.8%, respectively, from the previous month.

Stricter controls on property speculation have made it much harder to ramp up prices, while the government’s credit squeeze is already hitting developers. In Beijing, strict loan quotas have succeeded in cutting off credit to all but a handful of the biggest and best-connected developers, which can now only secure loans priced at 10% above the nominal interest rate.

China Construction Bank, the country’s biggest mortgage lender, reckons that a 10% drop in the market should cause no major problems, but a 20-30% drop would be very tough for the country’s still fragile banking sector to handle.
Source: HomesGoFast

Mondaq publishes a series of excellent reports on Asian estate and legal matters. They are well worth reading in full. This is a short version of the latest bulletin.

More and more foreign investors wish to invest in China’s real estate market to benefit from capital and currency appreciation.

Accordingly, over the past year the Chinese central government has issued numerous laws, policies, and administrative regulations in an attempt to cool down the real estate market.

The most recent measures, which will also affect local developers, include the enforcement of the land appreciation tax and penalties for hoarding land.

Circular 171, which has been in place for nearly a year, requires a foreign investor intending to purchase Chinese real estate to do so through an entity established in China. Further, where a foreign investor purchases a domestic real estate company through equity transfer or by other means, it must pay the transfer fees in a lump sum using its own capital.

Circular 171 also requires a foreign-invested real estate enterprise with an investment amount of no less than RMB10 million to have registered capital of no less than 50% of its total investment amount. Where the total investment is less than RMB10 million, current regulations remain unchanged.

Circular 171 states that first a foreign investor get the formal Foreign-Invested Approval Certificate and Business License before they obtain the State-Owned Land Use Certificate.

Then there is Circular 25 which last year expressly stated that the Chinese government will strictly restrict foreign investment in China’s real estate market.

Circular 50 issued about the same time reiterates many of the principles under Circular 171 but added that foreign investors are required to purchase the land-use rights before they apply to set up a development company in China. Circular 50 confirms the requirement under Circular 171 that the guarantee of direct or indirect ‘fixed revenues’ is forbidden.

There are several more but when read together, these circulars and policies show the commitment of the Chinese government to restrict and supervise foreign investment in China’s booming real estate market, especially high-end real estate development.

The full commentary is seriously worth reading and is miraculously free from legal gobbledygook. You can read it by clicking HERE.
Source: Mondaq

Despite reports of doom and gloom from the real estate sector it appears that, in fact, China’s property prices in 70 major cities jumped 11.3% in January from a year earlier, the biggest increase since at least 2005, when records began.

The National Development and Reform Commission said in a statement on its Web site that January’s prices were 0.3 percentage point higher than in December. New home prices surged 12.2% from a year earlier.

At the same time inflation in China climbed to an 11-year high last month which puhed it ahead of returns on bank deposits.

Premier Wen Jiabao pledged to curb ‘excessive’ growth of property prices and spend more to build cheap homes for rent and sale to poor families.
He identified inflation and economic overheating the two top risks facing the world’s fourth-largest economy in 2008 and promised a ‘tightened’ monetary policy to cool prices.

Wang Tao, head of Greater China economics and strategy at Bank of America Corp. in Beijing, said, ‘When property prices continue to rise, it pushes people out of the market and also increases financial risks as real estate lending and investment increase too rapidly, fuelling overheating.
Source: Bloomberg