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 Readers opinion
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Property Matter for Foreign Investors Investing in PRC Real Estate
Foreign investment in the PRC real estate sector has recently come under increasing PRC regulatory and foreign exchange restrictions. The restrictions have been brought in to address the PRC government’s concerns over an over-heated domestic real property market, and an over-flow of direct foreign investment in the real estate sector that puts further pressure on the revaluation of Chinese currency. As a result of these measures, foreign investors have now faced greater difficulties in obtaining regulatory approval and funding for foreign invested real estate projects in China.
Recent Regulatory Changes in the Real Estate Sector
The first restriction came on 11 July 2006 when several PRC government ministries and administration bodies jointly issued Jian Zhu Fang [2006] No. 171 (‘Circular 171’) that prohibited the use of a foreign direct ownership structure for real estate investment in the PRC. From this date, foreign investors would have to use an ‘onshore’ incorporated entity to invest in non-self-use real estate properties in the PRC.
Typically, the ‘onshore’ entity to hold real estate property may take the form of a joint venture between an onshore investor (as joint venture partner) and an offshore investor either as an Equity Joint Venture (‘EJV’) or a Corporate Joint Venture (‘CJV’). Alternatively, a Wholly Foreign-owned Enterprise (‘WOFE’) may also be formed by the foreign investor to acquire and hold the PRC property for rental purposes. The use of such structures to hold real estate investment in China creates cash traps and inefficient repatriation of cash income for foreign investors.
Effective from 23 May 2007, the Circular Regarding Further Strengthening and Regulating of Examination, Approval and Supervision of Foreign Investment in Real Estate Sector by Foreign Companies, Shang Zi Han [2007] No. 50, (‘Circular 50’) issued jointly by the Ministry of Commerce (‘MOFCOM’) and the State Administration of Foreign Exchange (‘SAFE’) has introduced more restrictive regulatory approval and funding requirements on foreign invested real estate projects. John Gu, Partner, PRC Corporate Tax, PRC Corporate Tax and Andrew Weir, Partner in Charge, Property and Infrastructure, KPMG China and Hong Kong SAR
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ImpressMedia is an established British publishing house which over the past four years has created a series of real estate magazines in Russia. The most famous of these is Commercial Real Estate, which has become a strong brand in the Russian market, and serves as an important means of communication between suppliers and providers; as well as between real estate professionals seeking to widen their horizons. In 2003, ImpressMedia also started a yearly commercial real estate Awards ceremony, which has now become an integral part of the real estate world in Russia. John Harrison helped create 'Commercial Real Estate' magazine in Russia, and was its first editor, from November 2002 to August 2005. He has written about real estate for over a decade.
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