National Development and Reform Commission

Foreigners banned from investing in Chinese villas

PUBLISHED : Monday, 30 January, 2012, 12:00am
UPDATED : Monday, 30 January, 2012, 12:00am

Beijing has moved to outlaw foreign investment in the construction and management of villas on the mainland - though the definition of a villa remains to be clarified.

In an amendment to foreign investment rules just published by the National Development and Reform Commission (NDRC) and the Ministry of Commerce, villa construction and management was re-categorised from 'restricted' to 'prohibited'.

The change, contained in the revised Catalogue of Industries for Guiding Foreign Investment (2011 Amendments), means that foreign investment in this type of real estate business is banned in the future.

The amended catalogue will become effective today.

The new catalogue lists industries in which foreign investment is either 'encouraged', 'restricted', or 'prohibited'. It replaces the catalogue that took effect in December 2007.

But in the absence of a clear definition, there is no certainty in the property industry about what qualifies as a villa.

In the past, the central government appeared to have accepted the concept that a villa meant a single detached court villa, global law firm Mayer Brown noted in a commentary on the revised catalogue. This indicated that any semi-detached villa, townhouse, overlapped villa or penthouse might not be categorised as a villa real estate project.

However, there is now talk in the market of the likelihood that the Ministry of Land and Resources is considering an official definition of the term 'villa' that might embrace semi-detached villas or townhouses, thus banning foreign investment in such 'quasi-villa' projects.

'It is yet to be seen how and when such a legal definition would be formulated and officially released,' Mayer Brown said.

Against the background of uncertainty, analysts said the amended catalogue could have a negative effect on new foreign investments in the real estate sector over the next few years, although they believed the impact would not be severe.

'Since the prohibition of any land supply for villas has been provided for in various rules since 2003, the impact of the [revised] Catalogue on the real estate industry may not be huge in this regard,' Mayer Brown said.

The prohibition of land supply for villa projects was issued in February 2003 by the Ministry of Land and Resources. Later, in December 2006, the ministry and the NDRC issued the catalogue on prohibited land use projects, which categorised a 'villa real estate project' as a 'prohibited land use project'.

Amendments to the foreign investment rules contained in the revised catalogue affect a number of industries including mines, food processing, and textile manufacturing.

Law firm Morgan Lewis said the revisions showed the central government's increasing desire to encourage foreign investment in high technology, high-end manufacturing, clean energy, energy saving, environmental protection and modern services.