The Chinese government continues to rein in overseas speculators in the country's property market, as it is now requiring foreigners to get approval before they send funds out of the country that were earned from selling houses.

According to a circular on management over foreign investment in China's housing sector, which was jointly released by the State Administration of Foreign Exchange (SAFE) and the Ministry of Construction, overseas investors who want to take over or acquire stakes in Chinese property companies will come up with the full purchase price.

A worker uses a walkie-talkie at a construction site in China's capital Beijing May 18, 2006. The Chinese government continues to rein in overseas speculators in the country's property market, as it is now requiring foreigners to get approval before they send funds out of the country that were earned from selling houses. [Reuters]

If they want to qualify for loans from Chinese or foreign banks, overseas-financed property companies will have to provide 35 percent of the funds needed for a project from their own resources, the circular said.

The circular also asked relevant departments to enhance supervision over property deals using foreign currency, requiring banks and local foreign exchange administrations to report property purchases made with foreign currency.

The Chinese government is also asking overseas institutions to provide documentation of their presence in China when buying property for their own use. These documents will be obligatory when they bring in foreign currency or register their properties.

According to the circular, funds from foreign property investors should flow directly to the Renminbi accounts of property developers.

China's new policies on overseas investment in the property sector aims at shutting the gate on speculators from overseas, sources with the Ministry of Construction said.

A recent regulation allows overseas residents who have worked or studied in China for more than a year to buy one housing unit for their own use.

China's land resources are scarce and its population huge, so the government must take a long-term view and step up supervision of property investment by overseas institutions and individuals, said the ministry in a press release.

Overseas funds have swarmed into China's housing industry, as investors make a double bet. They're hoping the RMB will continue to appreciate and they're expecting estate prices to continue to soar.

Housing prices in some Chinese cities have doubled in recent years, putting home ownership further out of the reach of many local citizens.

Overseas institutions and individuals are highly active in the market, but there are no clear rules and standards regulating their presence, the Ministry of Construction said.

The new policies are aimed at improving the quality of market information available to real estate regulators. Officials currently only have a partial picture of the type and volume of transactions that are being carried out.

Figures from the IMF (International Monetary Fund) show that of its 187 members, 137 control the overseas investment in their domestic property market, indicating that China's new action is internationally accepted common practice, the ministry said.