New rules regulating the use of overseas capital in the property market are imminent, according to Shanghai-based International Finance News, quoting an unidentified source.

The State Administration of Foreign Exchange (SAFE) previously announced that it would strengthen its monitoring of foreign capital in the property market. But it did not mention whether such a rule is necessary after the government issued a series of measures, including higher taxes and down payments, to cool surging home prices last month.

While foreigner investors claim that their interest lies in a general expectation of high returns from a prosperous sector in a rapidly growing country rather than speculation on the yuan's appreciation, local experts believe that speculation on the exchange rate is still the main drive. 

But there have been growing calls recently for regulation of overseas capital in China's property market.

"The government should control the flow of overseas capital, and especially limit the short-term overseas capital's flow into China's property market and manufacturing business," Guo Shuqing, director of the China Construction Bank, said during the finance summit at the Ninth Beijing Hi-tech Expo.

"China does not lack capital, so a rule regulating overseas capital's entrance into the domestic property market is urgent," Xia Bin, director of the Finance Research Center affiliated with the State Council's Development Research Center. said.

SAFE figures show that foreign institutions spent US$3.4 billion purchasing property in China last year. Ministry of Commerce figures also demonstrate that China's property market used US$1.497 billion of overseas capital in the first quarter of 2006, a 47.67 per cent increase from the same period last year.

According to property consultancy Jones Lang LaSalle, overseas capital had almost no access to commercial building development in China before 2005.

In 2004, foreign financial institutions  including Australia's Macquarie Bank, Goldman Sachs and Morgan Stanley  spent a combined US$450 million buying four commercial buildings in Shanghai.

Since 2004, overseas investors have been increasingly lured to China's real estate market to earn money from rental and property management fees.

The central bank's "China's Real Estate Finance in 2004," published last year, reported that the proportion of overseas capital to the total house purchasing capital in Shanghai had risen to 23.2 per cent at the end of 2004, sparking media interest in foreign investment in the property market.

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