Impact of New Beijing Housing Rules on Foreigners

"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner

On February 21 the Beijing Municipal Housing Commission ???? released a set of new measures designed to cool off Beijing’s residential property market. The measures include a reinstatement of the 2007 policy restricting foreign purchases of Beijing property. These rules are for Beijing only, although the timing, just before the National People’s Congress and CPPCC meetings in Beijing, is likely an explicit signal to other Chinese cities to enact similar measures.

China Daily has an English summary of the new rules and some color on the potential impact. Foreigners are now “only allowed to buy one apartment each in the capital, and must have worked or studied in the Chinese mainland for more than one year prior to the purchase.”

I think analysts are underestimating the pressure this will put on the upper end of the market. A not insignificant percentage of  top end purchases in the last few months were by foreigners, especially Hong Kong citizens. Easy 2.9% dollar mortgages from Bank of East Asia, effectively a very cheap, levered long RMB/short USD trade, enticed a lot of Hong Kong buyers. And to many of those Hong Kong buyers 50,000 RMB/m is cheap compared to Hong Kong prices. But the ones who came on the buying tours in November and December may now regret likely top-ticking this cycle of Beijing’s residential real estate market.

I recently learned of another restriction on foreign-owned property in Beijing. This rule applies to retail commercial space and came into effect January 1, 2010. So far I have not seen it publicized anywhere, in Chinese or English. Since the beginning of 2010 the Beijing Administration of Industry and Commerce (BAIC ?????) no longer accepts registrations of companies, either foreign or domestic, at commercial spaces purchased by foreigners after June 2006. A friend has been looking for a retail space for her new business and we first heard this from a real estate agent before Chinese New Year. Two different Chinese friends called the BAIC on Wednesday and confirmed that this rule applies to all of Beijing, and that it came from the Beijing Municipal Housing Commission.

I don’t think foreign landlords have a clue about this new rule. It clearly seems designed to stem foreign, “hot money” speculation in Beijing commercial real estate. It may hit its target, as you can not obtain a business license without a commercial address, and so potential renters may well decide it is just too much of a hassle to deal with foreign landlords, or at the least ones who bought their properties after June 2006. If you are renting commercial space in Beijing, as either a domestic or a foreign company, make sure you understand the nationality of the owner and the date of purchase before sign your lease and find yourself stuck with a space in which you can’t register your company.

I am not going to weigh in on the China bears’ real estate bubble meme here, but I will say that I think foreigners continue to underprice China regulatory risk.

9 thoughts on “Impact of New Beijing Housing Rules on Foreigners

  1. I won’t comment on whether “foreigners continue to underprice China regulatory risk.” Little too abstract for me.

    But I will see this: Housing discrimination against non-citizens has a long history in the People’s Republic. I began working in China occasionally as of 1981, and have lived here since 1994.

    In 1981, I was given only one legal option for housing in Beijing: Five-star hotels. You could not live elsewhere, and everyone who visited you was checked for ID. Subsequently, several Chinese who came to see me were visited at their work units by the police.

    When I moved to Shanghai in 1994, foreigners could only rent apartments in a handful of buildings in the city. My rent for a very modest 3-room apartment: US$2,000 monthly. I later bought an apartment in Shanghai under my Chinese girlfriend’s name, since I could not do so with my own name.

    When I moved to Shenzhen in 1996, I went to the police and asked “which” buildings I could live in. The policeman laughed. “Anywhere you like,” he said. I was then able to rent a small room in a building otherwise occupied by factory workers; it was the first time since 1981 that I could live with working-class Chinese for a reasonable amount of money.

    The restrictions that I note above were applied to foreigners until just 3-4 years ago in Beijing, with some exceptions for married couples, etc. The reason I was always given in Beijing for such restrictions: To ensure my safety and well-being. Few Beijingers seem to know, or be willing to admit, that these restrictions have always been aimed at separating foreigners from locals, and to make it easier for the local authorities to know which Chinese citizens visit foreigners in their homes. I once visited my Chinese relatives (through marriage) in Beijing; they begged me never to visit again. They were regularly visited by the police for three months’ thereafter…

    • I stayed with my wife’s family in Tianjin in 2008 for about 10 days. I’d been told when I got my visa that I was supposed to register with the police when I got there. But they told me not to bother. Everything went smoothly.

    • I love personal stories like these that put a lot of how much China has changed into perspective.

      Agree this new regulation may be about hot money inflows, but it’s not going to go over well with some people.

      • It is already not going over well. Several rental deals in the retail area
        of my complex in CBD have fallen through, and more than 1 owner who bought
        in last few months is trying to force developer to undo transaction. Good
        luck with that.

  2. I won't comment on whether “foreigners continue to underprice China regulatory risk.” Little too abstract for me.

    But I will see this: Housing discrimination against non-citizens has a long history in the People's Republic. I began working in China occasionally as of 1981, and have lived here since 1994.

    In 1981, I was given only one legal option for housing in Beijing: Five-star hotels. You could not live elsewhere, and everyone who visited you was checked for ID. Subsequently, several Chinese who came to see me were visited at their work units by the police.

    When I moved to Shanghai in 1994, foreigners could only rent apartments in a handful of buildings in the city. My rent for a very modest 3-room apartment: US$2,000 monthly. I later bought an apartment in Shanghai under my Chinese girlfriend's name, since I could not do so with my own name.

    When I moved to Shenzhen in 1996, I went to the police and asked “which” buildings I could live in. The policeman laughed. “Anywhere you like,” he said. I was then able to rent a small room in a building otherwise occupied by factory workers; it was the first time since 1981 that I could live with working-class Chinese for a reasonable amount of money.

    The restrictions that I note above were applied to foreigners until just 3-4 years ago in Beijing, with some exceptions for married couples, etc. The reason I was always given in Beijing for such restrictions: To ensure my safety and well-being. Few Beijingers seem to know, or be willing to admit, that these restrictions have always been aimed at separating foreigners from locals, and to make it easier for the local authorities to know which Chinese citizens visit foreigners in their homes. I once visited my Chinese relatives (through marriage) in Beijing; they begged me never to visit again. They were regularly visited by the police for three months' thereafter…

  3. I stayed with my wife's family in Tianjin in 2008 for about 10 days. I'd been told when I got my visa that I was supposed to register with the police when I got there. But they told me not to bother. Everything went smoothly.

  4. I love personal stories like these that put a lot of how much China has changed into perspective.

    Agree this new regulation may be about hot money inflows, but it's not going to go over well with some people.

  5. It is already not going over well. Several rental deals in the retail area
    of my complex in CBD have fallen through, and more than 1 owner who bought
    in last few months is trying to force developer to undo transaction. Good
    luck with that.

  6. Real Estate Regulations From China's State Council ???10??? | Sinocism

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