A revised list of Guidelines on Foreign Investment released by the central government will not likely have any significant impact on the country's real estate market, industry experts have agreed.
The new guidelines, jointly issued last week by the National Development and Reform Commission and the Ministry of Commerce, are the latest revision to the previous version, which was issued in 2004.
Effective December 1, foreign funds being funneled into housing agents and brokerages will be restricted and foreign capital flowing into the development of large-scale land lots and the construction and operation of high-end hotels, villas, office towers and exhibition and convention centers will also face restrictions.
Given that foreign investment accounted for just 4.4 percent of total real estate investment in Shanghai in 2006, the impact on the overall market is not likely to be significant, experts said.
However, it is widely agreed that further elaboration on the new policy, particularly the newly promulgated areas of brokerage and agency business, will need to be evaluated to see its real impact on foreign investment.
"I can't see any impact on foreign investment at the current stage until further details and practical guidelines are introduced by the government," said Remy Chan, regional director of Asia Pacific at Jones Lang LaSalle, one of the top five real estate service providers in the world.
Colliers International had similar thoughts on the guidelines.
"It is noted that major measures to restrict foreign investment in the real estate industry were already promulgated last year as contained in Document No. 171. The revised list suggests no substantial change to the policy on the real estate industry," Colliers, one of the world's top five real estate agencies, said in a commentary e-mailed to Shanghai Daily last week. "The devil is in the details."
"We note that the revised list is issued against the background of continuous yuan appreciation, which hit successive record highs to 7.42 yuan against US$1 on November 8," Colliers said. "Restriction on foreign investment in certain industries would thus help to slow the inflow of foreign capital.
"The revised list also echoes the steer from the 17th National Congress of the Communist Party of China on industry restructuring toward quality growth. The revised list therefore should be viewed more as an overall adjustment to steer the direction of foreign investment than specific measures targeting an individual industry," Colliers added.
However, industry experts said several points found in the revised version could be noteworthy.
For instance, foreign funds being funneled into housing agents, brokerages and the second-tier real-estate market will face restrictions.
"This is definitely good news to domestic real estate agencies, which generally speaking are quite weak when compared to their counterparts overseas," said Xue Jianxiong, head of research at Shanghai Youwin Real Estate Information Service Co Ltd. "The new policy has indicated the state's effort to nurture domestic housing agencies that have almost lost their ground to overseas players particularly in the second-hand property sector."
According to Youwin's research, agencies with overseas investment background have already taken a major share in the city's second-hand property market. The list includes Midland Realty, Centaline, Century 21, Coldwell Banker and Hanyu Property.
Only a few strong domestic players exist such as 5i5j and Hopefluent.
"This new measure may suggest that the government wants to somewhat restrain foreign players' participation in the trading of properties, probably against the upsurge in property prices, which according to some market commentaries was partly fueled by an increase in foreign acquisitions," Colliers said in the statement. "There may be some impact on transactions in the mid-to-high end of the property market where foreign players mainly participate. However, given the rather diversified structure of foreign participation in the second-tier market and real estate brokerage/agency business, the delineation of foreign participation in this market segment has yet to be ascertained."
(Shanghai Daily November 13, 2007)