The Bureau of Statistics recently announced that China’s real estate sector has received 16.7 billion yuan (US$2.087 billion) in foreign investment during the first half of 2006, which is an increase of 32.5% year-on-year. The volume saw a 46.6% increase in the first three quarters to 25.9 billion yuan (US$3.24 billion). To a certain extent, stronger macro controls have not dampened the interest of foreign investors in China’s real estate sector.   Some experts claim it created an even better investment environment since they are assured of lower investment risk and higher investment return.

In June, Standard Chartered joined hands with Morgan Stanley acquired a stake in Shimao Property Holdings Limited for US$50 million. Then in July, Standard Chartered also acquired a stake in Greentown China Limited for US$48 million. Standard Chartered is not the only foreign investor that has a strong interest in China’s real estate sector: Deutsche Bank recently announced its plan to acquire or build more than 20 top-end hotels in key cities including Beijing, Shanghai and Tianjin; the German bank made its first move into China’s real estate market by investing in a US$225 million residential property development project in the city of Zhuhai.  Hang Lung Properties Limited, one of the three biggest property developers in Hong Kong, also plans to invest HK$25 to 30 billion (US$3.205 to 3.846 billion) in the Mainland over the next three years.

The confidence of foreign investors remained strong despite stronger macro controls imposed by Beijing. The main reason is some foreign investors think that macro controls increase stability of China’s real estate development, reduce investment risk of expanding in the market, thus creating a favorable climate for investment. Since Mainland China lacks capital and financing when the government tightened control over bank loan approved to property development, many property developers sell their land or properties at lower prices. For foreign investors backed by strong capital, the circumstances offer a good opportunity to purchase properties or land and earn a high return on investment.

“The macro controls have largely reduced the risk of investing and operating in the market. It is now the best time for investment,” says Chairman & Chief Executive Officer of Rising Star Holdings John Probandt. “In the past few years, we were nervous about initiating costly new investments since we did not know clearly how to evaluate the risks. Although the market was very promising, many foreign investors encountered losses. However, the macro controls serve as reasonable policies to discipline the market. Strategic investors consider them to by security measures that can help guarantee profitability.”

While the macro controls are interpreted as a sign of China’s real estate sector would not be as unstable and beyond control as before, the country’s booming economy, increased disposable income and demands for properties are the positive factors that still promote foreign investment. Jones Lang LaSalle's latest global real estate capital report titled “Record Volumes, Record Globalization” shows that China, as one of the world’s emerging markets, continues to attract significant cross-border investment. Cross-border flows into China reached US$2.77 billion, which makes up 58% of China’s total investment.

The report said that China, especially in first-tier cities like Beijing and Shanghai became the focus for cross-border investors. Global sources of funds were particularly active in the Shanghai market.  In September 2006, there were a total of 15 properties involving approximately US$1.8 billion in Shanghai. All 15 involved major foreign institutional investors, originating from the United States, Europe and Asia Pacific.