Tighter capital controls and a slowing domestic Chinese economy are making it harder for Chinese to buy property overseas.
A recent report by Chinese property search portal Juwai estimated that outbound real estate investment by Chinese companies and individuals would drop by as much as 20% this year to $80 billion, down from $101.4 billion last year.
Overall, Chinese outbound investment dropped nearly 46% to $48.19 billion in the first half of the year, according to data released by China’s Ministry of Commerce, after hitting a record high in 2016. Real estate, which has been a favorite sector for overseas investment, is among the sectors seeing some impact.
After encouraging Chinese companies to acquire assets overseas for years, Chinese regulators pulled back and sought to stem the outflow of capital from the country, which hit a high in October last year and fueled depreciation of the RMB. China’s State Council tightened up enforcement of capital controls, requiring government departments to sign off on all foreign acquisitions over $10 billion or $1 billion if it’s outside of the acquirer’s “core” business. The notice also said to halt foreign real estate purchases more than $1 billion by state-owned enterprises.
The tightened capital controls have had impact on individual buyers are well with agents noting some delays and longer closing times.
Chinese buyers still interested, despite obstacles
Despite the slowdown, real estate agents and other industry insiders say interest in U.S. real estate among Chinese buyers remains strong. Chinese investors are generally underinvested overseas. There are also long-term concerns about slowing Chinese growth and desire to diversify into other markets.
Interest in the U.S., particularly coastal markets such as California or New York, remains strong. The U.S. is the most popular destination for Chinese immigrants, students and corporate investment, which drives investment in property.
Chinese investment in international and U.S. real estate hit a historic high in 2016. “While we think the dollar amount is likely to decline somewhat this year, investment levels are still in the foothills of this mountain range. There are higher peaks ahead,” said Sue Jong, chief of operations for Juwai.com.
In a recent report by the National Association of Realtors, based on a survey of about 6,000 realtors in the U.S., found that 35% of survey respondents reported an increase in the percentage of international client transactions to their business from a year ago and that buyers from Greater China remained the top foreign buyers.
In another recent survey by Investorist, an Australia-based online property platform focused on new residential construction, Chinese agents found that while there were some signs of slowing, the overall desire to diversify continued to be strong.
“Despite increased capital controls imposed by the Chinese government in 2016, Chinese people remain extremely motivated to invest in foreign property for the long term,” the report said.
Jon Ellis, founder and CEO of Investorist, noted that the impact of capital controls on overseas real estate sales was uneven. Smaller, more niche agencies were enthusiastic about the outlook, while larger agencies were more bearish. The survey suggested that smaller, nimble agencies with more specialized knowledge were adapting better.