After buying shares in R&F Properties and Sunshine 100, Warburg Pincus went on to acquire a 25 percent stake in the real estate arm of Shanghai Zhongkai Group this January.

Tax factor

Experts believe tax is another important factor in the change.

"Taxes on the transfer or selling of property have made asset investment costly for those onshore foreign companies who have rights to conduct asset investment," said Charles Zhang, a senior analyst from Colliers International's Shanghai Office.

The government began to remedy tax deficiencies in the real estate sector by collecting several new types of taxes, notably a 5.5 percent transaction tax.

What's more, the recent strict enforcement of an existing land appreciation tax has further increased the costs of buying assets, added Zhang.

Tian also attributed the change to the improved market conditions. Previously, high risks for foreign investors lurked in the market as they undertook development of a project.

"They generally felt it hard to control risks like land use rights during the development process," said Tian.

"But in today's market, uncertainty is reduced and they feel safe to develop property projects alone or with the aid of local developers," Tian continued.

Meanwhile, equity investment has also become an important financing channel for local developers and can be understood against the backdrop of real estate finance, said Tian.

"In the past, local developers could only borrow money from banks in the way of indirect financing," said Tian. "Now direct financing from equity investment can fuel those developers who are eager for money."

(China Daily 03/02/2007 page15)

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