Foreign investors go onshore

PUBLISHED : Wednesday, 26 March, 2008, 12:00am
UPDATED : Wednesday, 26 March, 2008, 12:00am

A scarcity of mainland property assets held by offshore investors is forcing new foreign companies onshore to deal directly with mainland property owners, consultants say.

Demand for mainland property assets held offshore rose sharply from the middle of last year when regulatory controls over foreign investors buying real estate were tightened.

But the offshore supply is now drying up as a result, the consultants say.

The regulation that triggered the increased demand for mainland property held offshore was Notice 50 issued in the middle of last year. The notice required foreign investors doing onshore deals to obtain approval from the local government concerned and the Ministry of Commerce.

Foreign companies with offices on the mainland also require central government approval under the notice, before they can expand or develop their landholdings.

The new system complicated the transaction processes and led to delays and hold-ups so foreign investors began mopping up property assets held offshore to escape the effects.

But Alvin Yip Kwok-ping, the head of the South China investment department at consultancy DTZ, said the tougher regulations did not mean the central government was becoming opposed to foreign investors in the property market. 'They still welcome foreign investors, particularly in second and third-tier cities. But buyers will have to take on board the risk of delayed approvals.'

Mr Yip said foreign buyers should also be aware that onshore transactions were subject to a deed tax at a rate of 3 per cent of the purchase price.

A source from a foreign investment fund said: 'Offshore transaction is still attractive to investors due to the tax benefit. And onshore deals still give investors an 'unsafe' impression.

'We will consider buying property through onshore transactions unless there is tax restructuring or a reduction by the government.'