August 23, 2017

China Formalizes Restrictions on Capital Outflow

Pacific Union Chief Economist Selma Hepp examines the potential impacts of recent regulations on Chinese investment in U.S. and California real estate.

Executive Summary:

  • Chinese investment in U.S. property — including lodging, real estate, and real estate investment trusts (REITs) — has risen from $2.3 billion in 2013 to $33.1 billion in 2017.
  • In California, nonresident Chinese buyers of residential real estate comprise more than 50 percent of foreign nonresident buyers. However, the share of foreign buyers has been declining since 2014 and stood at only 3 percent in 2016. That number will likely trend lower in 2017.
  • Accelerated Chinese investment in “risky,” investments, such as trophy properties and sports and entertainment companies, concerned the Chinese government and nudged formal restriction of those investments.
  • The Chinese government’s formalized rules are aimed at curbing currency outflow and limiting risks in the financial sector.
  • While Chinese investors have always been nimble in finding work-arounds, further restrictions on currency outflow may discourage some from investing in U.S. real estate or helping family members already here with down payments or purchases.
  • The impacts of the restrictions are still unclear, since California housing markets remain highly competitive and supply constrained.

 

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