The Chinese authorities recently relaxed restrictions on foreign investment in real estate, aiming to attract funds into the property market through “precision irrigation.” However, experts point out that given the lack of confidence in foreign investment and the ongoing decline in property prices, this move may not effectively reverse the slump in the real estate market, with its actual impact likely to be limited.
The State Administration of Foreign Exchange of China recently issued a notice on deepening reforms in the management of cross-border investment and financing, aiming to provide more conveniences for overseas individuals and enterprises purchasing properties in China.
For overseas individuals: Previously, foreign property buyers had to obtain a property registration certificate before they could settle foreign exchange, but developers often required upfront payment. The new rules allow eligible overseas individuals to settle payments directly through banks based on the property contract and submit the registration certificate later.
For foreign enterprises: The new rules have lifted restrictions on using capital project foreign exchange income for purchasing non-residential properties. This means that foreign enterprises can now use foreign exchange funds to buy office buildings, employee dormitories, and even engage in commercial real estate investments. This adjustment is seen as a crucial measure to revitalize existing properties, particularly commercial real estate.
Li Bin, the Vice Director of the State Administration of Foreign Exchange, stated that this adjustment is to adapt to the new situation in the real estate market, emphasizing that it is not a “flood irrigation” approach but rather intended to support stable market development.
However, it is important to note that the qualifications and purchase restrictions for overseas individuals and enterprises have not changed and must still adhere to the regulations of local governments.
In response to this policy adjustment, Chinese affairs expert Wang He told Epoch Times that the impact of the new policy on overseas individual property purchases is limited, as it only simplifies the payment process without relaxing purchase restrictions.
Wang He analyzed that the substantial relaxation of the policy mainly lies in corporate property purchases, likely to alleviate the challenges faced by commercial real estate, especially the high vacancy rates in cities like Beijing and Shanghai, hoping to inject vitality into the sector.
He also pointed out that the authorities remain cautious regarding foreign investment in residential properties, with Beijing still holding onto the hope of stabilizing prices and demand, thus keeping restrictions tight for personal property purchases.
The success of the new policy will depend on foreign investors’ confidence in the Chinese market. If institutions like Goldman Sachs forecast a delay in the bottoming out of the Chinese real estate market until 2027, foreign interest in entering the market may remain subdued.
In reality, the relaxation of restrictions on foreign property purchases by the Chinese government comes against the backdrop of a persistently weak real estate market, with various data reflecting dire market conditions.
According to data from the National Bureau of Statistics of China on September 15, property prices in 70 major and medium-sized cities in China continued to decline in August. New home prices fell by 0.3% month-on-month, marking a 27-month consecutive decrease; second-hand home prices dropped by 0.7%, with Beijing leading the country with a 1.2% decrease.
Furthermore, from January to August this year, national real estate development investment fell by 12.9% year-on-year, with sales areas of new commercial housing and sales revenue also declining by 4.7% and 7.3% respectively. These figures all indicate severe inventory buildup in the market, making it challenging for real estate enterprises to recoup funds.
In light of the current market situation, senior figures in the Chinese capital sector have conducted in-depth evaluations from a macro perspective.
Speaking to Epoch Times, Xu Zhen stated, “The issuance of this policy exposes the Chinese economy’s dire state, in urgent need of large-scale foreign investment to barely sustain itself. However, real estate investment follows the logic of ‘buy high, not low’ and ‘do not enter a perilous country,’ with the actual effectiveness of this policy likely to be minimal.”
Xu Zhen further pointed out that for investors looking to bottom-fish in real estate, entering the market at this time may be akin to buying at the midway point, facing the risk of further price drops. Foreign investors are likely to be extra cautious in such a scenario to avoid becoming “bag holders.”
The debt crisis of Chinese real estate enterprises continues to worsen. According to data released by the China Index Research Institute on August 21, since 2020, 77 real estate firms have defaulted on debt, with 30 listed companies exiting the market, highlighting deep impacts on the industry.
So, can this new policy truly reverse the market downturn? Experts generally hold a pessimistic view.
Wang He believes that the impact of the new policy on individual property purchases is limited, making it challenging to curb the downward trend in prices. He has little hope for significant foreign investment inflow into residential real estate.
When analyzing the price decline trend in Beijing, Wang He indicated that the city’s negative population growth and declining middle-class incomes make sustaining the inflated property prices difficult. The authorities’ decision to relax restrictions only outside the Fifth Ring Road indicates their belief in the market’s resilience, hence adopting a strategy of stabilization and recovery through pertinent policies.
Additionally, Xu Zhen added that the price decline in Beijing signifies a correction, expected to continue in sync with the national trend in the long term. “Under the current system, the measures taken may only scratch the surface or even be a stopgap measure,” he assessed. While the finer details of easing exchange settlements may hint at potential relaxation of overseas purchase restrictions, the overall impact is likely to remain weak.
Despite this, the symbolic significance of the new policy should not be understated. Data shows that the 2024 pilot program in the Guangdong-Hong Kong-Macau Greater Bay Area has attracted residential property funding of 1.64 billion yuan from Hong Kong and Macau residents. This indicates some success of the new policy in specific regions, but analysts like Li Yujia told China Real Estate News that large-scale foreign entry is still constrained by purchase qualifications, the principle of “housing is for living, not for speculation,” and various market factors, making trend formation of net foreign inflows challenging.
Experts generally view this policy as more of a signal to encourage foreign investment, but its long-term impact on the Chinese real estate market requires a comprehensive evaluation combining current macroeconomic conditions and geopolitical risks.