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The China real estate market had started to slowdown since 2008 and the downturn of the market has deepened due to the outbreak of the global economic turmoil in the last few months.  In order to stimulate purchases and investment in the real estate sector, the Chinese government at various levels adopted a number of measures in recent months. This alert provides a summary of those measures and a brief analysis of how and to what extent those measures can help boost foreign investment in the PRC real estate sector.
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China has experienced a massive boom in the construction industry in the past decade.  About three years ago, the Chinese government started to introduce a series of anti-speculative measures to slow down the boom and to try to tame the fierce property prices.  As a result, a slowdown in the real estate market in China has commenced since the first half of 2008.  With the revulsion of global economic environment in the second half of 2008 and the further cooling down of foreign investment in PRC real estate sector, the Chinese government (both at the central and local levels) recently adopted a number of measures to stimulate property purchases and to encourage foreign investment in the PRC real estate market.
1.  Notice of Ministry of Commerce on Filing for Foreign Investment in Real Estate Industry ???«???????????????????»(???[2008]23? )("Notice 23")
Notice 23 was issued by the Ministry of Commerce ("MOFCOM") on 18 June 2008. According to such Notice, commencing from 1 July 2008, MOFCOM delegated its power of reviewing and checking of the filing of foreign investment projects in real estate industry to authorities of commerce at the provincial level. MOFCOM will carry out random checks on the approval of established foreign-invested real estate enterprises ("FIREEs") jointly with relevant departments of the State Council.
Before issuance of Notice 23, all the establishment of FIREEs shall be filed with MOFCOM after they have been examined and approved by local branches of MOFCOM.  If a FIREE fails to conduct and complete the filing with MOFCOM, the administration authority of foreign exchange and the designated banks for foreign exchange business shall not settle or sell foreign exchange for the FIREE.
With the delegation of power under Notice 23, the procedures for obtaining approval of foreign investment projects in real estate industry should be less time-consuming, despite the fact that the basis of verification adopted by the provincial authorities will remain the same as that previously adopted by MOFCOM. Therefore Notice 23 can be deemed as an indication of re-encouraging foreign investment in the real estate sector. 
2. Uniform Collection of Real Estate Tax Levied on Domestic and Foreign Invested Enterprises and Individuals  
On 31 December 2008, the State Council announced the abolishment of the Provisional Regulations on Urban Real Estate Tax «??????????» and the implementation of uniform collection of real estate tax on all companies, enterprises and individuals commencing from 1 January 2009 in accordance with the Provisional Regulations on Real Estate Tax of the PRC «???????????????». The unification of real estate tax puts an end to the different real estate tax systems applicable to domestic and foreign invested real estate enterprises and will, to a certain extent, help to create a level playing-field for foreign investors.
3. Local Policies
Local governments of different cities have issued various policies to stimulate foreign investment in the real estate sector.
  • In 2006, in order to cool down the heated property market in China, certain restrictions were imposed on foreign investors (including entities and individuals) for purchase of real property in China.  Under those restrictions, only a branch office or representative office of a foreign entity or a foreigner who has worked or studied in China for over one year may purchase a real property for self-use purpose only.  However, starting from 1 January 2009 and until 31 December 2009, restriction on the one year residence period and the use of real property in relation to purchase of real property by foreign individuals have been suspended in Beijing.  Foreign individuals can purchase real property in Beijing during the year 2009 irrespective of whether or not such individuals have worked or studied in PRC for more than one year and irrespective of whether or not such real property is for self use purpose.
  • In Shanghai, foreign investors are now allowed to open a foreign currency deposit account for payment of land security deposit for the purpose of participating in the bidding process for land. In other words, foreign investors who currently do not have any establishment in PRC are now granted with channels to pay land security deposit and thereby are able to participate more actively in land auctions.
  • Similarly, in Tianjin, foreign investors are now permitted to take part in pre-application of land with the local land authority by making payment of deposit to a foreign currency  account opened by the land exchange centre of Tianjin. If the pre-application of land is passed, the foreign investor may apply to the authority of commerce for issuance of an Approval Certificate for a FIREE with validity period of one year.
  • Apart from the above, other measures like lowering mortgage rates, reducing down payments and cutting transaction taxes have also been introduced so as to make it easier for people to buy houses.
The above new policies and measures are no doubt signals of relaxation of restriction on foreign investment in the PRC real estate sector. However, foreign investors are still subject to other stringent restrictions under various circulars and measures for curbing speculation in the real estate market issued by the PRC government in the past few years. Therefore, to what extent such new policies and measures can boost foreign investment in the real estate sector and stimulate demand in the market is something that we need to wait and see.
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