China further restricts foreign real estate investment

In an attempt to rein in property investment, China will prevent foreign investors from borrowing offshore.

China is set to again increase limitations on property investment by foreign investors. According to a circular from the State Administration of Foreign Exchange obtained by the Reuters news agency, China will ban foreign investors from borrowing money offshore, where interest rates are lower.

The circular was sent by the currency regulator to its local branches in July but was not made public until this week. In addition to restricting borrowing from outside the country, the circular also increases the red tape on bringing capital into China to invest in real estate. To do so investors must now submit documents with the Ministry of Commerce in Beijing in addition to local branches of the ministry.

The move is not the first attempt by the government to rein in property investment. The nation’s central bank told Chinese banks to stop lending for land purchases in 2003, and it has also told banks to cut back on loans for the construction industry. The government now also requires foreign investors to secure land purchases before setting up joint ventures or whole owned foreign enterprises in China.

However increasing restrictions in the past have not curbed foreign investors appetite for real estate purchases in the country, which contains a growing middle class eager to buy property. Last year ING Real Estate closed a $350 million real estate fund targeting China, and Deutsche Bank’s investment arm RREEF recently formed a joint venture with H&Q Asia Pacific to spend $550 million developing and managing 25 hotels across the country.