Architecture and Design

Investing in sustainability

Two recent blog posts examine the potential for foreign investors to capitalize on sustainable building projects.

Steve Dickinson from the China Law Blog recently explained how some recent changes to China’s real estate laws will restrict foreign investment.

• “Foreign Investment In China, Part II: Can You Say Last Nail In The Real Estate Coffin?”
  By Steve Dickinson
  China Law Blog
  November 13, 2007

• In May of this year, the notorious Circular 50 requires all foreign invested real estate projects, no matter the size or nature, be approved at the national level in Beijing. This allows Beijing to turn the market on and off through its approval authority.

• In July, the State Administration for Foreign Exchange issued Circular 130, regulating and limiting the use of foreign exchange in real estate investments.

Dickinson says there are a couple of reasons why Chinese authorities would want to restrict foreign investment in real estate:

First, foreign investment is believed to drive up real estate prices to the detriment of local citizens. Second, the flood of money into the real estate market was exacerbating China’s excessive accumulation of foreign reserves.

As a follow-up to Dickinson’s post, Managing the Dragon offers a suggestion that he says will help foreign developers “create incentives for the government to support their projects”: the development of sustainable buildings.

• “Sustainable Palm Greasing”
  Managing the Dragon
  November 15, 2007

As Steve Dickinson very concisely summarizes in this recent post on China Law Blog, the government is actively expanding their control over foreign investment in China’s real estate market. That isn’t to say that real estate is completely off limits for foreign players, but rather that the Central Government has put themselves in a position where they can disapprove or delay projects completely at their own discretion. In this sort of environment, with many opportunities remaining, especially in Tier II cities, foreign developers and investors will be actively seeking ways to create incentives for the government to support their projects.

One excellent approach that stands out clearly in my mind is the development of sustainable buildings. The numbers related to energy use / waste in China’s commercial buildings are clear – office buildings consume approximately 25% of all electricity in the country and about 80% of China’s power is generated by heavily polluting, coal burning power plants. As such, the development of a sustainable building sends the message that the community where it is being built is taking progressive action to cut back on energy use and pollution, and this is great PR for any politician and for China as a whole….

The vast majority of construction in China is happening in provincial capitals and smaller cities and these are the areas that foreign developers are most keen to establish a presence – margins are higher and land is in greater supply. Perhaps sustainable building is the “palm grease” that these developers need to get government support and continue to succeed in China’s increasingly impenetrable real estate market.

Read his full post here.

[tags]China, green architecture, sustainable development, foreign investment, real estate law[/tags]

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