The Beijing authorities have passed several laws and regulations to control investment in China's real estate market in 2006.  On September 1, 2006, the State Administration of Foreign Exchange (“SAFE”) and the Ministry of Construction jointly enacted new rules regarding the purchase of real estate by foreign owners (the “Circular”).  The Circular implements the Opinion on Regulation of Foreign Capital on the Real Estate Market (the “Opinion”).
                      
Controlling Foreign Investment in Chinese Real Estate
The new Real Estate laws provide that a branch or representative office of a foreign organization ("Foreign Entity") must submit specific documents to a designated bank for verification when purchasing real estate:

1.         The purchase contract for the real estate;
2.         The approval letter and necessary documents from Chinese authorities, including the certificate of registration of the Foreign Entity establishing that it has permission to open a branch or representative office;
3.         The certificate issued by the local real estate administration for registration of the pre-purchase contract on the property;  and
4.         A written commitment by the Foreign Entity that the property is for private use as an office and not for sale or lease.

Payment by the Parent Company
A Foreign Entity may pay for real estate via overseas remittance from the parent company or with its own domestic foreign capital account, but after settlement of the exchange RMB should be wired directly to the real estate enterprise's RMB account.  When purchasing real estate in China, Foreign Entities may not use funds from income in China or money in a foreign exchange current account.
           
Foreign individuals who purchase domestic real estate must submit certificates stating that they will be working or studying in China for a minimum of one year.  However, Chinese citizens living overseas and residents of Hong Kong, Macao, and Taiwan are not required to document their reasons for staying or the anticipated length of their stay in China.
          
 If a transaction is not completed, RMB refunded to a Foreign Entity or individual may be exchanged for foreign currency and remitted abroad after bank verification.  If the Foreign Entity or individual sell domestic real estate, RMB proceeds from the transaction may be used to purchase foreign currency and remitted abroad upon Bank verification.
           
The law provides for regulation of the settlement of foreign currency by a foreign-invested real estate enterprise ("FIREE"):

1.         If the FIREE fails to pay its registered capital, fails to obtain a Use Permit for State-Owned Land, or its paid-in capital is less than 35 percent of total investment for the project, it is not allowed to apply for a commercial loan from an overseas bank or organization, and local SAFE branches will not grant a cross-border debt registration or the verification and approval of a cross-border debt settlement.
2.         Local SAFE branches will not grant a certificate of foreign exchange registration if the foreign purchaser fails to pay for its Chinese holding shares with its own capital in a lump sum in the share purchase of a Chinese funded real estate enterprise.
3.         Local SAFE branches will not issue or change the certificate of foreign exchange registration for a foreign-invested enterprise if the FIREE's shareholders have promised a fixed return of any kind to any party in any the FIREE's documents.
           
The Circular is the first rule passed to implement the Opinion which was issued in July 2006.  Designated domestic banks serve as supervisors of foreign exchange when a Foreign Entity or individual purchases real estate in China.  Because the central government tightly supervises foreign purchasers in the domestic real estate market, there likely will be additional rules regarding the Opinion and further regulation of foreign real estate investment in China.