New rules ease China investment in foreign real estate

PUBLISHED : Monday, 13 October, 2014, 4:02am
UPDATED : Monday, 13 October, 2014, 4:02am

Beijing's latest move to simplify approval procedures for outbound investments will put mainland investors in a more competitive position in the global market and speed up the pace of investment in different industries, including real estate.

New Measures for Foreign Investment Management (Measures No3), published early last month by the Ministry of Commerce, came into effect on October 6. They allow domestic companies to invest overseas without prior approval, although they must first register their investment with the authorities. Only investments in sensitive industries or countries - not detailed by the ministry - will now require approval.

Under the previous regulations, any overseas investment project worth more than US$100 million required approval from the ministry.

David Blumenfeld, a partner at international law firm Paul Hastings, said the new rules cut the red tape and shortened time limits for ministry approval and verification for many industries, including real estate. But he added that the whole approval process for some sensitive sectors was completely different.

"It will simplify the process and stimulate outbound investments," he said.

The new measures say provincial commercial departments of the Ministry of Commerce can now manage filings by local enterprises investing overseas, and they can issue and print the certificates allowing enterprises to do so.

"Enterprises who file forms honestly and completely could obtain approval in three working days," the ministry said.

Blumenfeld said mainlanders considering outbound investments involving foreign sellers had previously preferred to add a condition in their contracts giving them the ability to cancel the contract if they could not receive approval.

That led to foreign sellers viewing the ability to close a deal with mainland investors as more difficult, but the new rules placed them on an equal footing with foreign buyers, he said.

Alistair Meadows, head of the Asia-Pacific international capital group at JLL, said: "Prior to this policy change, in certain markets such as New York and London, it's been difficult for Chinese institutional investors to compete in 'on market' processes, as the time frame required for internal and external approvals has often exceeded the time line for these sales processes."

He said the policy change would allow mainland investors to more readily compete in bidding processes in those markets.

JLL expects the move will further accelerate the flow of outbound capital from the mainland, in particular into favoured markets like Australia, the United States and Britain.

The mainland deployed US$14 billion in commercial real estate investment overseas last year, compared with US$6 billion in 2012. The rate of growth has slowed a little this year, possibly in response to investors waiting for the new investment rules to come in. So far this year outbound investment in commercial real estate from the mainland is approximately US$7.5 billion, on track to match last year and likely to accelerate next year.

Apart from the Ministry of Commerce, the National Development and Reform Commission (NDRC), the mainland's top economic planner, also has the power to approve or veto an overseas investment project.

According to new measures released by the NDRC in April, mainland companies planning to invest less than US$1 billion overseas will only need to register with the authorities instead of seeking approval from the NDRC.

Any overseas investment project larger than US$1 billion must be approved by the NDRC and investment above US$2 billion must be approved by the State Council.