Sat, November 13, 2010
Business > Economy

Changes aimed at cooling the flow of 'hot money'

2010-11-13 09:02:53 GMT2010-11-13 17:02:53 (Beijing Time)  China Daily

Foreign institutions with a presence in China will only be allowed to buy commercial property for their own use and it must be in the city in which they are registered.

According to Shenzhen-based Securities Times, the government is about to make the move to prevent the influx of so-called hot money.

The Ministry of Housing and Urban-Rural Development and the State Administration of Foreign Exchange have issued a notice outlining the rules that will also only allow foreign citizens living in China to buy one home for their own use, the paper said on Friday, citing unnamed sources.

The newspaper did not say when the anticipated policies will take effect.

Neither ministry commented on the story on Friday.

Analysts said the measures are likely being introduced to curb the flow of hot money into the real estate market.

Hot money refers to funds that flow into a country to take advantage of such things as a favorable interest rates and the resulting higher returns. Such speculative money is believed to make economies more volatile.

Expectations of a stronger yuan and a higher interest rate have fueled the flow of foreign capital into China, analysts said.

Emerging economies need controls to manage the flow of such money to ensure economic stability in the wake of the United States' ultra-easy monetary policy, said Joseph Stiglitz, a Nobel Prize-winning economist was quoted by Reuters as saying on Tuesday.

US real estate company Jones Lang LaSalle published a survey on Friday that indicated that an overwhelming 76 percent of investors expect to be net buyers in the Asia Pacific region during the next 12 months.

According to Grant Ji, director of the investment department of real estate company Savills (Beijing), the way in which "foreign institution" is defined in any new regulations will be crucial.

"If foreign institutions whose core business is asset investment are also included, the influence of this policy will be huge," Ji said.

Wei Dong, research head of DTZ (North China), said the new policy will further limit room for foreign institutional investors.

"Because the central government has launched a slew of measures to curb residential home purchases and investment, an increasing amount of real estate capital has turned to the office and retail sectors. The launch of the new policy will also cap their investment in the commercial property sector," Wei said.

In September, Hong Kong-based Citic Capital Holdings Ltd invested 1.5 billion yuan ($224 million) in a commercial property project in Changsha, Hunan province. And Everbright Ashmore (Beijing) Real Estate Investment Consultancy Co Ltd, the property investment arm of Hong Kong-headquartered China Everbright Ltd, has invested $25 million in a commercial project in Chongqing.

But for Gan Meilan, partner of US-based equity firm Prax Capital, their business will not be affected by the new policy because the company does not invest in the commercial sector. Like some other private equity firms, Prax Capital has taken part in the development stage of property projects, an area that has not been limited by government policies.

US private equity companies Blackstone and Aetos invested $50 million in realty projects in Dalian, Liaoning province, through a stake investment in local property developers.

"Such a trend is quite obvious - more international real estate funds and private equity firms now prefer to develop projects with local real estate companies together, instead of purchasing existing office buildings," Ji said. "For foreign institutional investors, another major way to bypass the policy restriction is to set up yuan-denominated funds."

Blackstone, for instance, has raised more than half of the money for its first yuan fund since it started raising capital for the fund last year. Antony Leung, the group's chairman for Greater China, said he was confident of raising 5 billion yuan for its first onshore fund.

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