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16/04/2011 - China bans overseas investment in villa projects  16/04/2011 - China bans overseas investment in villa projects

16/04/2011 - China bans overseas investment in villa projects

Beijing, China: In further efforts to slow record high property prices and control inflation in China, the Chinese government has banned all foreign investment in the construction and management of villas.

The change to the ‘Catalogue Guiding Foreign Investment in Industry’ guidelines, last revised in 2007, now lists foreign investment in the construction and management of villas in the ‘prohibited’ category. Previously this was listed as ‘restricted’.

The state planning National Development and Research Commission and the Ministry of Commerce announced the revisions, which are designed to gauge public opinion before the end of April.

"This is just a gesture you see from time to time. Supposedly if you want to cool the market, you should increase the supply. It is counter-intuitive to try and limit money going into the sector, commented David Ng an analyst at the Royal Bank of Scotland.

"There will be some impact, but it will not be very big. Foreign exchange curbs and difficulties in acquiring land already limited some foreign investment in villas,” said Albert Lau, managing director of Savills Shanghai.

Most real estate experts have reacted to the new rules by stating that foreign investors are undeterred by China's policy tightening spree.

However, before the ‘restricted’ regulation came into force in 2007 foreign investment from outside Asia accounted for thirty three per cent of property investment in China. In 2008, that more than halved to twelve per cent, before dropping to just two per cent in 2009. This only improved slightly in 2010 when overseas investment rose to seven per cent.

Recently, the U.S. based China Business Council recommended that the secondary property market in China should be moved to the ‘encouraged’ category to open up the market to property developments controlled by foreign businesses. But, as property prices remain high, there is no indication China will relax any of its real estate regulations for foreign investors any time soon.

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