Andy Xie, an economist with Morgan Stanley in Hong Kong, said there was an element of speculation in China's real estate market. He said a combination of low interest rates and expectations of further appreciation of the renminbi have caused an influx of overseas money.

Some experts said the latest measures would not have much of an impact on the market.

"The proportion of foreigners buying houses in China is rather small. And foreigners are focusing on high-end apartments and villas, a sector with a high vacancy rate," said Susan Zhang, national director of Jones Lang LaSalle, a multinational real-estate consultancy in Beijing.

A Beijing real-estate agent engaged in property intermediary service said only 10 per cent of its clients are foreigners.

The purpose of the rules, as Michael Hart, head at Jones Lang LaSalle's research department in Shanghai, understands, is to "bring greater transparency to the market" and "make sure investment is longer term, not short or speculative."

But they might not have much effect because China's property market is "mostly driven by local buyers and local developers," he said.

It is generally believed that foreign investment accounts for some 4 per cent of property sales in Shanghai and Hart said the new rules would have some impact on "a few projects targeting foreign buyers."

Wayne Zane, director of research and consultancy department in Colliers International Property Services, Shanghai, said: "It obviously shuts down a door on foreign investment in the property market."

Weng Haitao, a researcher with the Shanghai office of Savills China, said some foreign investors may face financial pressures in the short term because the new rules require foreign investors put down 50 per cent, instead of the previous 30 per cent, of development costs for investments of US$10 million or above.