Development in the real property sector is one of the hottest phenomenons in China in recent years, among which the investment by foreign entities has increased quite rapidly and purchase of real property by foreign organizations and individuals has also been quite brisk. The crazy increase of price of real property greatly affects the national economy. With a view to regulate the real property market and promote the healthy development thereof, Ministry of Construction, Ministry of Commerce, National Development and Reform Commission, People’s Bank of China, State Administration for Industry and Commerce and State Administration of Foreign Exchange jointly formulated <Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof> on July 11, 2006 (hereinafter “Opinions”).

Ⅰ. Main Content of Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof

1、Regulating the Entry of Foreign Investment into the Real Property Market

When a foreign organization or individual wishes to invest in or purchase real property in China not for its/his/her own use, it/he/she shall comply with the principle of having a commercial presence by applying to establish a foreign-invested enterprise; A real property enterprise invested in and established by a foreign business entity with a total investment of US$10 million or more may not have registered capital of less than 50% of its total investment. If the total investment in such an enterprise is less than US$10 million, current provisions shall continue to apply in respect of its registered capital; When a foreign-invested real property enterprise is established, its establishment shall be subject to the approval of, and the registration procedures thereof carried out with, the competent commerce department and administration for industry and commerce in accordance with the law, which shall issue to it a Foreign-invested Enterprise Approval Certificate and Business License for a term of one year.

2. Strengthening the Administration of the Development of and Dealing in Real Property by Foreign-invested Enterprises.

Foreign investors that wish to invest in real property but do not have a Foreign-invested Enterprise Approval Certificate and Business License may not develop or deal in real property; If the registered capital of a foreign-invested real property enterprise has not been paid in full, or the enterprise has not obtained a State-owned Land Use Certificate, or the paid-in capital of a development project is less 35% of the total investment of the project, the enterprise may not take out domestic or foreign loans and the foreign exchange control department will not approve the settlement of foreign exchange in connection with its foreign exchange borrowings; The Chinese and foreign investors to a foreign-invested real property enterprise may not in any manner specify in the contract, articles of association, equity transfer agreement or other document terms that guarantee a fixed return or a fixed return in a disguised form to either party.

3. Strict Control of the Purchase of Real Property by Foreign Organizations and Individuals

Branches, sub-branches and representative offices set up in China by foreign organizations (excluding enterprises that have been approved to engage in real property business) and foreign individuals who are to work or study in China for more than one year may, in line with their actual needs, purchase commodity premises for their own use or their own residence, but may not purchase commodity premises that they will not themselves use or reside in. Foreign organizations that do not have a branch, sub-branch or representative office in China and foreign individuals who are to work or study in China for less than one year may not purchase commodity premises. Residents of Hong Kong, Macao and Taiwan and overseas Chinese may, in line with their personal needs, purchase commodity premises in the mainland of a certain area for their own residential purposes. Qualified foreign organizations and individuals that wish to purchase commodity premises for their own use or for their own residence must do so using their true names and, on the strength of valid documentation (which here and hereinafter shall mean, for a foreign organization, the proof issued by the relevant departments of the Chinese government evidencing approval for the setting up of an establishment in China; and for a foreign individual, proof evidencing approval for him/her to work or study in China), carry out the relevant leasehold and housing title registration procedures with the competent land and real property department. The real property title registration procedures department must carry out the title registration procedures for foreign organizations and individuals in strict accordance with the principles of own use and own residence, and may not grant registration to unqualified organizations or individuals.

4. Further Strengthening and Implementation of Regulatory Responsibility.

Ⅱ. Detailed Rules and Regulations of Purchasing Real Property by Foreign Entities and Individuals in Shanghai

In order to cooperate with the regulation of Opinions, Detailed Rules and Regulations of Purchasing Real Property by Foreign Entities and Individuals in Shanghai has been formulated and the main content thereof: First, “One Certificate, One Premise”, i.e. when foreign individuals and persons in Hong Kong, Macao and Taiwan who conform to the conditions purchase premises, they shall be in accordance with the principle of “One Certificate, One Premise”. It is subject to certificate rather than persons. Among which, when foreign individuals purchase premises, he/she shall has the Residence Certificate (Residence Permit) or long-term valid visa; Valid certificates of residents in Hong Kong include Home-coming Certificate, Hong Kong ID and Hong Kong Passport; Taiwan Compatriot Certificate and Taiwan ID of clients in Taiwan shall be regarded as two certificates. Secondly, Notarization Office’s preliminary examination shall not trace back to historical number of purchased premises, i.e. commodity premises purchased by foreign entities and individuals shall be calculated into the number restriction since the issue of the Detailed Rules and Regulations. Premises that clients have already purchased before the formal issue of the document shall not be calculated and purchased premises shall apply the new regulations after implementation of the document.

Ⅲ. Detailed Rules and Regulations of Restricting Purchasing Real Property by Foreign Entities and Individuals in Beijing are being formulated

After issue of “Restrict Foreign Entities and Individuals to Purchase Premises” by six Committees, Market Exchange Administration Office of Beijing Construction Committee issued <Urgent Notification Regarding Purchasing Commodity Premises and Signing Contract by Foreign Organizations and Individuals > on July 20, which is known from Beijing Construction Committee. It regulates since July 21, 2006: “Branches, sub-branches and representative offices set up in China by foreign organizations (excluding enterprises that have been approved to engage in real property business) and foreign individuals who are to work or study in China for more than one year may, in line with their actual needs, purchase commodity premises for their own use or their own residence, but may not purchase commodity premises that they will not themselves use or reside in. Foreign organizations that do not have a branch, sub-branch or representative office in China and foreign individuals who are to work or study in China for less than one year may not purchase commodity premises. Residents of Hong Kong, Macao and Taiwan and overseas Chinese may, in line with their personal needs, purchase commodity premises in the mainland of a certain area for their own residential purposes.” “Other detailed rules and regulations of implementation shall be performed according to relevant regulations issued by Construction Committee”. The detailed rules and regulations of implementation are being formulated at the moment.

<Opinions> restricts and regulates foreign organizations and individuals to purchase real property in terms of substantive conditions as well as procedure requirements; and the policy issued by six Committee of restricting foreign funds to raise real property’s price has arisen huge reverberation. Beijing and Shanghai are formulating detailed rules and regulations to further implement Opinions and it will benefit real property and macro-economy’s healthy development of our country.

Ⅳ. Detailed Rules and Regulations of Implementation of <Opinions> -- <Notification Regarding Regulating Foreign Exchange Administration on RealProperty Market >

State Administration of Foreign Exchange and Ministry of Construction have issued <Notification Regarding Regulating Foreign Exchange Administration on RealProperty Market> (hereinafter <Notification>). It is another cooperation of State Administration of Foreign Exchange and Ministry of Construction to further implement <Opinions> and regulate more detailed and strict detailed rules and regulations of implementation after State six Committee issued <Opinions> in July and restricted foreign funds into real property.

<Notification> definitely regulates on entry of foreign investment into the real property enterprises market and administration of development and dealing regarding foreign exchange: If the foreign-invested real property enterprise has not fully paid the registered capital, has not obtained a <State-Owned Land Use Certificate> or the paid-in capital of a development project is less 35% of the total investment of the project, the enterprise may not take out loans; Foreign entities may not pay the entire transfer price with its own capital in one lump sum when merging or purchasing domestic real property enterprise, registration of equity transfer, collection, foreign capital and foreign exchange shall not be handled; Fund in special foreign exchange account of foreign investors can not be used in development and dealing in real property.

Furthermore, <Notification> requires strengthening the statistics supervision on revenue and expenditure and exchange of foreign exchange regarding transaction of domestic commodity premises, requires all designated foreign exchange banks and branch of foreign exchange administration to timely collect and report statistics information regarding revenue and expenditure and exchange of foreign exchange of foreign entities’ purchase of domestic commodity premises and authorities concerned of real property shall strictly carry out registration and recording system of commoditypremises pre-sale contract. <Notification> also requires authorities to strengthen cooperation, establish and perfect information sharing and information circular system regarding foreign transaction of real property.

── Winnie Shao