Over the past five years, the U.S. real estate market has been flooded with capital from Chinese investors who are eager for the opportunity to both earn high yields and move their cash outside the reach of the Chinese government. This real estate binge began when the crash of the U.S real estate market drew in thousands of Chinese investors looking to swoop up houses and commercial properties for highly reduced prices. The Chinese government limits individual's annual overseas investments to roughly $50,000; however, for years these laws have been circumvented by channeling money through friends, relatives, and employees. After the Chinese market crash in August, the government has cracked down on these laws, making it increasingly difficult to transfer capital outside the country. John Chang, a real estate broker with Re/Max in New York City described the current situation as being “like barbarians at the gate,” Chinese families want to buy, but “can’t get the money out.”
The government’s crackdown on these outflows, coupled with China’s recent slowdown and market volatility has led to a drop-off in U.S. home purchases by Chinese investors. This slowdown in residential property purchases is expected to be only temporary, with home purchases picking back up once there is more stability in the Chinese market. When asked about this slowdown, Daniel Chang, a New York City real estate broker at Sotheby’s International Realty stated that “We are ready to embrace a winter for Chinese buyers in the next one year, two years.” Reiterating this sentiment of a temporary slowdown, Frank Chen, executive director and head of research at property consultancy CBRE Chine, stated that “In the very short term there will be some impact for people who don’t have a foreign income stream or who don’t have a bank account or funds in overseas banks, but the outbound real estate investment trend is likely to remain quite strong.”
While there has been a slowdown in home purchases, commercial property investment by Chinese investors is still continuing at a rapid pace. Somewhat surprisingly, these investors are focusing their investments on “small office buildings, chain hotels, and other nondescript properties in and around big U.S. cities.” Investors are looking to move as much capital as they can out of China, where they fear inflation and instability, in a manner that does not attract much attention. There are outliers to this incognito strategy, such as the Chinese insurer who paid $1.95 billion for New York’s Waldorf Astoria Hotel, but for the most part investors are looking to stay off the radar.
With the sustained investment in U.S. commercial properties, and with the slowdown in residential purchases expected to be only temporary, it appears that Chinese foreign investment will be a mainstay in the U.S real estate market for years to come.