Real estate funds grow despite new controls on residential property

The development of real estate funds in China has gathered momentum in 2010, and more are in the pipeline. By Phill Smith, partner, and Ren Yong, registered foreign consultant (New York, USA), Mayer Brown JSM, Hong Kong

Following a number of regulations issued earlier this year to dampen price inflation in the residential property market, and just before the week-long national holiday at the start of October and the expected “golden week” for property sales, several ministries of the PRC central government, including the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, the State Administration of Taxation and the People’s Bank of China, promulgated further measures on 29 September to curb speculation and stabilize home prices.

These new measures built upon prior regulations by providing detailed implementation requirements and emphasizing enforcement activities, but also went further in many respects. For example, the minimum required down payment was increased from 20% to 30% on first homes for all residential property types, and the ban on mortgage loans for a third home was broadened to the entire country instead of limited to a few key cities. The new regulations are viewed as a response by the central government to the waning effect of prior measures and the continued rapid rise of residential real estate prices, which increased over 10% nationwide in August and September alone. The new regulations demonstrate the government’s determination to keep residential property prices from getting out of control and prevent the bursting of a property bubble, which could have adverse consequences not only for the real estate and banking sectors but also for the wider economy.