Will Real Estate prices be affected by the reduction of capital outflows from China?
One of the driving factors of the Real Estate rebound has been Foreign Direct Investment (FDI) of capital into the United States. China currently accounts for over 35% of these funds, and is the single largest investor external to the US.
However, due to new Chinese regulations and restrictions on capital flows outside of the mainland, this driving force is expected to be reduced or significantly restricted. Chinese officials have limited investments in foreign real estate to $1 million per transaction, as investments over that amount end up in a "restricted" category. They have also severely restricted insurance companies' foreign investments, and heavily scrutinized recent purchases. In fact, of the largest foreign real estate investors, Anbang Insurance Group, is under investigation. Finally, China’s Primier Xi is a major proponent of the “One Belt One Road” initiative, which is a significant infrastructure project to rebuild the ancient silk highway linking Asia to Europe. In order for this project to come to fruition, massive amounts of capital investment will be required, which is another reason why Chinese officials are intent on restricting capital outflows from the country.
The good news if that, while Chinese investment capital into US real estate markets will be restricted, the spigot is not completely shut off. This means that there should be a “soft landing” in terms of the reduction of capital flows. The China real estate website Juwai.com is predicting about a 20% reduction in foreign real estate investments, but that still represents about a $80 Billion market. And if you want even more insight into where things are headed, keep an eye on the 19th Party Congress (China’s twice a decade meeting of its Communist Party leaders which started October 18th, 2017) for any major policy announcements or leadership changes.