Foreigners Limited in Buying Houses on Mortgage in China

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  At the beginning of Febru- ary, the National Reform and Development Commission (NDRC) published the Notice about the Applications of Foreign Banks in China for the Middle- and Longterm Foreign Loans in 2012, according to which the foreigners in China are restricted in buying houses on mortgage in China.
  The notice said that the NDRC would give priority to the demand for foreign loans of the fixed assets investment project when checking and approving the quota of middle- and longterm foreign loans in order to lower the term mismatch risk. The loans for foreigners to buy houses on mortgage in China are not included in the quota of middle- and long-term foreign loans. The overseas middle- and long-term interbank deposit and other nonresident deposit (the transferable deposit excluded) are managed by the State Administration of Foreign Exchanges(SAFE) as the short-term foreign loans. This new measure would reduce the source of capital for foreigners to buy houses on mortgage in China and thus restrict them in this section.
  Analysts said that the stipulation issued by the NDRC would not have big influence over the property market. In November 2010, the SAFE issued rules that a foreigner can only buy a house in China. From then on, fewer and fewer foreigners bought houses. With the strong regulation and control of the real estate market, foreign investors gradually quitted the secondhand house dealing market in China. According to the statistics, foreigners only took 5% of the total number of house buyers in Shanghai in 2011.
  Another notable point is that the commercial property market, which is less influenced by the regulation and control, is under heavier scrutiny recently. Against this background, foreigners might turn their focus to the commercial property market, such as the shops and service apartments. The NDRC’s notice further restricts foreigners in buying houses on mortgage in China, but the influence over the commercial property market remains unknown.
  Prof. Yin Bocheng from Fudan University said that this change was“just shooting the mosquito with guns”– the actual impact is not big.
   Foreigners aren’t interested in buying houses in China
  When the real estate market in China reached its best time 2009, hot money ceaselessly flew into the market. At that the Chinese government required a foreigner could only buy one house for his/her own residency in China. In addition, the branches or representative offices of overseas institutions in China could only buy nonresidential houses in the cities where they are located. These measures held back the foreign investors’ speculation in the Chinese real estate market.
  Now the upgrade of the restriction happened when the background of the real estate market made a 180-degree turn. The strict regulation and control pushed the real estate into a cold winter– the trade volume was kept at a low level and foreigners were rarely seen in the team of purchasers.
  According to the statistical data of 21st Century China Real Estate, more than 90% of the secondhand house dealings in Shanghai in 2011 were conducted by the people in Shanghai or from other parts of mainland China. Foreign house buyers only accounted for 0.6% of this group while 0.7% of the purchasers came from Hong Kong and Taiwan.
  Actually, the proportion of overseas house buyers in Shanghai (including the ones from Hong Kong and Taiwan) in 2011 was not smaller than the year of 2009.
  “We did not see any foreigners come here to buy houses from the second half of last year,” said Ye Wenbo, a director of the Shanghai branch of 21st Century China Real Estate. Though the area Ye Wenbo’s works for has a lot of foreign residents, they are not willing to buy houses in China due to different restrictions and thus the trade volume is extremely low. Meanwhile, if any foreigners come to buy houses, they would like to finish the payment once for all instead of relying on mortgage.
  Chen Bing, general manager Centraline Property’s Yongxin Branch, was busy with the promotion of secondhand houses in Yongxin City, a residential community in Xujiahui. The secondhand houses within his grasp were 10% cheaper than the market standard and thus attracted the attention of many foreigners. In some of the finished deals, the buyers made the lump-sum payments. “Now one house is sold at 7 million to 8 million yuan. The foreign customers know that it is hard to get loans, so they choose finish the payment once for all if they can afford it.”
  In addition to that, more foreigners are not eager to buy houses in Shanghai; instead, they are more willing to rent houses. Ye Wenbo said that 50% of the houses within his grasp were lent to foreigners. Muller, a German who came to Shanghai in 2010, was living in a rented house. “The headquarters of my companies gives subsidies to the employees working out of Germany. Our Shanghai branch actually prepared rooms before we arrived in Shanghai. I think living in a rented house is not bad. Many of our friends think the same way too,” Muller said. He admitted that he had no intention to buy a house in China.
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