China bans foreign investment in villas

China is set to prohibit foreign investment in the development of villas, apparently part of the government’s measures to cool the property market.

Planned revisions to the Catalogue Guiding Foreign Investment in Industry included foreign investment in the building and management of villas in the “prohibited” category. It was previously listed in the “restricted” category.

“There will be some impact but it will not be very big,” said Albert Lau, Managing Director of Savills Shanghai, adding that foreign exchange curbs and difficulties in purchasing land have already restricted some foreign investment in villas.

David Ng, an analyst at the Royal Bank of Scotland, noted, “This is just a gesture you see from time to time. Supposedly if you want to cool the market, you should increase the supply. It is counter-intuitive to try and limit money going into the sector.”

Global property firm Jones Lang LaSalle (JLL) believes that foreign players are actually not concerned by China’s policy tightening efforts and are returning to acquire distressed assets or invest in troubled domestic developers.

According to JLL, foreign investors outside Asia accounted for 33 percent of China’s real estate investment in 2007. That fell by more than half to 12 percent in 2008, before dropping to a mere two percent in 2009. The ratio has slightly recovered, increasing to seven percent in 2010.