In an ironic turn of fate the Chinese government has announced plans to relax the regulations covering real estate investment by foreign parties. When you bear in mind that Chinese investors have played a major role in real estate markets around the world, such as Australia, it is certainly a surprise to see the Chinese authorities seeking the support of foreign investors. However, when you bear in mind the ongoing economic troubles of the region perhaps this is something of a payback and the easiest way to get the Chinese property market back on track?
Foreign ownership restrictions
When the Chinese real estate market began to “overheat” back in 2006 the government introduced an array of regulations restricting access for foreign investors. There were specific limits put on the number of properties which could be held by foreign individuals and businesses, i.e. one, and the parties involved had to live in the country for at least a year before they could invest. There were also further restrictions introduced on foreign companies looking to acquire real estate which significantly limited the appeal of this investment strategy.
Historically China has been a very private and a somewhat mysterious market for many investors although recently we have seen a relaxation in some areas due in the main to trade-offs with other countries. So, will this relaxation of Chinese property regulations lead to foreign investors re-evaluating their global real estate exposure?
While many may be critical of the Chinese authorities relaxing investment regulations for overseas parties the fact is that many other countries around the world have introduced similar strategies. We’ve seen the likes of Spain and Greece tempting overseas investors with promises of residency visas simply as a means of supporting local real estate markets. It is perhaps the fact that historically China has been very protective of its own investment markets which perhaps goes against the grain a little?
We all know property markets are central to economic prosperity and activity and this has not gone unnoticed, especially when you bear in mind the ongoing troubles of the Chinese economy. Indeed recent fiscal intervention by the Chinese authorities has had little impact so far although there are signs of a short-term stabilisation of the situation.
As we have mentioned in some of our recent articles, we have seen an array of Chinese real estate and construction companies fall by the wayside due to financial pressures. Indeed there is significant unsold property right across China’s more prominent cities and the government is obviously hoping that foreign investors will pick up the slack. In theory these are situations which can turn very quickly because with relatively little in the way of new properties making their way to the market, due to construction industry problems, a run on Chinese property could pick up the majority of the slack.
It is somewhat ironic that the Chinese authorities are now attempting to attract foreign investors to the country’s real estate market. This comes after years of Chinese investment in overseas real estate markets such as Australia which has supported some markets in times of trouble. Has the real estate investment cycle now come full circle with China relaxing overseas investor regulations?