To implement the “Notice on Resolutely Containing the Excessive Hike of Property Price in Some Cities” (Guofa[2010] No. 10) (the “No.10 Notice”) in terms of mortgage loan policies under which the down payment in respect of purchasing a second house/apartment using bank loans shall not be less than 50% and the interest rate shall not be lower than 1.1 times the base rate, the Ministry of Housing and Urban-rural Development of China together with the People’s Bank of China (China central bank) and China Banking Regulatory Commission jointly issued a new rule regarding how to define the “second house” (the “Defining Rule”) on June 4, 2010.

According to the Defining Rule, when a buyer applies for mortgage loan, the banks may look into whether any of the buyer’s family members has already owned or bought a house. If yes, the harsher down payment and interest rate applicable to the second house shall apply; otherwise, he/she may enjoy the favorable policies applicable to the first house, including 30% down payment and even possible discount on base interest rate. Family members include the spouses and under-aged children below 18 year-old.

With respect to non-local resident buyers who cannot produce certification certifying that they have paid security insurance premium or tax in the place of target house for at least one (1) year, the new Defining Rule has made a shift from the policy set forth in the No. 10 Notice under which such non-local residents are denied to mortgage loans. The shift lies in Section IV of the Defining Rule which says banks may apply the second-house policies to such non-local resident buyers which means such buyers are still able to obtain loans; meanwhile, banks in cities where the housing prices are excessively high, prices have seen drastic rise and housing supply is tight may refuse to grant loans for second house to such non-local residents. This shift signifies the dilemma of central government in balancing the people’s demand for affordable housing prices and the necessity of maintaining the real estate sector as the major engine to drive the national economy forwards.

Despite that the Defining Rule has made clear the criteria for defining the second house, it remains in question to realize the full force of the second house policy due to technical problem that real estate registration data in cities throughout China is not accessed between one another, which makes it impossible for banks to find out whether a family have already owned a house somewhere else.

For foreigners, rules regarding purchasing residential property in China remains unchanged, namely foreigners who are entitled to study or work in China for not less than one (1) year are eligible to buy house/apartment for self-using purposes based on his or her own needs.