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.