China plans to restrict purchases of real estate by foreign investors to reduce speculation and prevent a property bubble, a government official said.

New rules defining what type of overseas investor can buy property may be announced this month, Lin Zheying, deputy director general of the commerce ministry's Foreign Investment Administration, told reporters in Beijing today.

Residents visit a housing exhibition in Shanghai in this photo taken on June 12, 2006. [newsphoto]

The regulations may threaten plans by investors including Citigroup Inc. and Morgan Stanley to increase holdings of Chinese real estate after Shanghai housing prices more than doubled since 1999. Premier Wen Jiabao has curbed lending to cool an economy that grew 10.3 percent in the first quarter and to prevent a drop in property prices from causing loan defaults.

"The government is worried that overseas investment is bringing too much foreign currency into China and that it will cause property bubbles,'' said Liu Yang, who helps manage $3 billion of Asian assets at Atlantis Investment Management Ltd. in Hong Kong. "But people are buying because they see real growth prospects and real returns from Chinese real estate.''

Policies to cool foreign property investment come amid a raft of other measures Wen is implementing to cool a credit-fueled investment boom driven by swelling inflows of foreign capital.

China's reserves of foreign currency have doubled over the past two years to $875 billion as the trade surplus widened, leaving the financial system awash with cash. The government's policy of controlling the yuan's gains against the dollar forces the central bank to issue treasury bills to soak up surplus funds.

The International Finance News said in early June the State Administration of Foreign Exchange may use "technical'' restrictions such as tightening transaction settlement procedures and strengthening supervision of real estate companies receiving foreign funds or listing overseas.

With foreign investors poised to pour billions of dollars into Chinese real estate, restricting investment from overseas could help slow growth in foreign exchange reserves and ease pressure on property prices.

Page:

1

2

3