China: Circular 122 – China Starts To Unwind Limits On Foreign Investment In Real Estate In Response To Slowing Economy

Nine years ago, in July 2006, six different Chinese government agencies issued Opinion 171, the first of a number of circulars imposing limits on foreign investment in the property market in response to concerns about a rapidly overheating market. On August 19, 2015, reflecting concerns about a slowing economy, these same six agencies - the Ministry of Housing and Urban-Rural Development ("MOHURD"), Circular on Adjusting Policies on Real Estate Market Access by Foreign Investors and Related Administration (关于调整房地产市场外资准入和管理有关政策的通知) ("Circular 122") lifting a number of these limits with a view to boosting a sluggish market. Circular 122 took immediate effect.1 the Ministry of Commerce ("MOFCOM"), the National Development and Reform Commission, the People's Bank of China, the State Administration for Industry and Commerce and the State Administration of Foreign Exchange ("SAFE") – issued the

Circular 122 is not the first measure adopted by the Chinese authorities to boost the property market. Over the past 12 months, the Chinese government has taken various such measures. However, these measures targeted and principally benefited domestic investors. Circular 122 is the first measure targeting foreign investors.

We summarize key provisions of Circular 122 below and analyze some of the practical implications for foreign investment in Chinese real estate.


Opinion 171 limited the leveraging of foreign investment in Chinese property by imposing a maximum debt to equity ratio specific to foreign-invested real estate enterprises ("FIREEs"). Opinion 171 specified that a FIREE must have registered capital of at least 50% of its total investment amount – meaning in effect that FIREEs can have a maximum one-to-one debt to equity ratio, a limitation to which domestic investors in the property sector as well as foreign investors outside the property sector are not subject. Opinion 171 also imposed the requirement that the registered capital of a FIREE must be fully paid up before it is permitted to borrow.

Circular 122 eliminates both these restrictions, meaning that FIREEs are permitted to use the same debt to equity ratio applicable to foreign investors in other sectors (as high as two-to-one, depending on the amount of the FIREE's registered capital) and, subject to other related regulatory and lender restrictions, may borrow while some portion of registered capital has not been funded.

Undoubtedly, these are positive changes. But equally, they may not be seen by foreign investors as dramatic improvements, for a number of reasons:

  1. The relaxation of the leverage ratio will only gradually affect loan financing of foreign-invested real estate projects. Reducing the registered capital of an existing FIREE is fraught with technical and practical difficulties, and increasing a FIREE's total investment is also subject to government approval and registration formalities. The more relaxed leverage ratio will nonetheless benefit FIREEs established in the future, as well as existing FIREEs that undertake capital increases in the future.
  2. Circular 122 did not abolish a more fundamental restriction on FIREE borrowing, namely the prohibition on FIREEs' use of cross-border debt financing imposed under current SAFE rules.2 The leverage ratio is oftentimes not strictly observed in relation to domestic borrowings in the first place. In contrast, SAFE enforces it strictly in connection with cross-border debt (including in the form of offshore shareholder loans and bank loans).
  3. Other material restrictions on the timing of FIREE borrowings remain. Even if a FIREE can borrow before its registered capital is fully contributed, it still must wait until (a) it has obtained a "land use certificate" for the land that is being developed and (b) its paid-in project development capital exceeds 35% of its total project investment.

The authorities appear still to be concerned about over-leveraging, and may be adopting a wait-and-see approach instead of rushing to abolish other restrictions on FIREE borrowing. Moreover, banks in China may, as a matter of lending practice and its internal policies, maintain lending restrictions on FIREEs.


Opinion 171 had previously limited foreign nationals and PRC branches and representative offices of foreign entities to China property purchases for "self-use" only. Circular 122 restates this restriction. However, Circular 122 does not restate the additional requirement of Opinion 171 that a foreign national must have been resident in China for one year prior to purchasing. Some commentators understand this omission to mean that the one-year residency requirement no longer applies.

Circular on Further Regulating the Administration of Housing Purchases by Overseas Institutions and Individuals (关于进一步规范境外机构和个人购房管理的通知) issued by SAFE and MOHURD on November 4, 2010 also limits a foreign national to the purchase of only one residential property as part of the "self-use" restriction. Circular 122 does not expressly confirm or remove this one-property restriction, and thus it is unclear whether the restriction will continue to apply after the issuance of Circular 122. In practice, relevant authorities may take account of the number, as well as the size, of residential properties held by a foreign national in determining whether a proposed purchase is for "self-use".


Circular 122 sets out the general objective of simplifying the approval formalities and improving the supervision procedures of FIREEs going forward. However, the only specific measure provided is to permit FIREEs to apply directly to banks, rather than to SAFE, to complete formalities such as the foreign exchange registrations to set up a new FIREE and to open up new capital accounts. This particular measure simply reflects reforms already implemented by SAFE in relation to foreign direct investment in other sectors. It remains unclear how approval formalities (including MOFCOM approval and filing requirements) might be streamlined to help foreign investors execute real estate transactions in China more quickly.

* * *

Circular 122 by itself is unlikely to have a dramatic effect in stimulating foreign investment in Chinese real estate, but it may still be significant as a signal that the Chinese government will at last loosen foreign real estate investment restrictions as the Chinese economy continues to stutter. Implementation of Circular 122 and the announcement of additional liberalization measures should be closely monitored by any investor interested in the Chinese real estate market.


1. Formerly known as the "Ministry of Construction."

2. See the Operational Guidelines for Administration of Registration of Foreign Debts (in Chinese, 外债登记管理操作指引), which is an appendix to the Circular of the SAFE on Distributing the Administrative Measures for Registration of Foreign Debts (in Chinese, 国家外汇管理局关于发布《外债登记管理办法》的通知) promulgated by SAFE on April 28, 2013 and amended on May 4, 2015. Note that such restriction was initially stipulated in the Circular of SAFE on the Distribution of the List of the First Group of Foreign Invested Real Estate Projects that Have Been Filed with the Ministry of Commerce (in Chinese, 国家外汇管理局综合司关于下发第一批通过商务部备案的外商投资房地产项目名单的通知), issued by SAFE on, and effective as of, July 10, 2007, and then abolished on May 13, 2013.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Paul D. McKenzie
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.