The Chinese New Year started on Saturday January 28, 2017 and the holiday will last until Febrary 15th. This is the year of the Rooster, an animal found on the Chinese calendar described as honest, energetic, intelligent, flexible, and confident. American real estate agents hope the Chinese influence on the market will continue to exude such character. The new year also brings some new regulations on how they are allowed to spend and diversify their money, mainly in regards to foreign exchange. The China foreign exchange regulator announced on January 1, 2017 that a new policy will affect all Chinese citizens in the matter of disclosing the purpose of their foreign purchases.The real estate market with Chinese buyers is seeing now fully enforced old and immediate stricter new regulations. As an agent you can prepare for a longer time to close deals with Chinese buyers and will want to consider partnering with local firms to increase conversion rates to make deals more enticing. It is expected that demand will remain high for Chinese upper class to continue to invest heavily, those who are nervous about the aggressive regulation implementation in efforts to stop the currency value from dropping which has a reverse effect but is now clearly slowing down the exchange. For smaller deals this change is happening currently with The China foreign exchange regulator who announced January 1, 2017 that a new policy will affect all Chinese citizens in the matter of disclosing the purpose of their foreign purchases on a form. Purposes cannot be “real estate” on the forms, instead they must be listed as purposes such as travel, education, etc. The effort by China to monitor and place stricter controls on it’s citizens have been in the works for months. Banks were monitoring purposes of foreign exchange already in 2016. Over the last several years, China created a policy that citizens could transfer only $50K USD out of mainland China although the average purchase price in regard to inquiry as seen through East West Property has been $870K USD which far exceeds that policy.*1That inquiry price will surely decline when more Mainland Chinese look to second and third tier cities due to budgets and these kinds of policed controls. For larger deals, there is action but it is not as intimidating for the realistic market. In November of 2016, China’s State Council, sent a notice to all government departments requiring sign offs on all foreign acquisitions over $10B USD or $1B USD if it was outside of the acquirer’s core business. Chinese government wants to have transparency in knowing where it’s money is going, especially if it cannot stop it. *2 The approval rule is not new but it is set to be more strictly enforced until the RMB (renminbi – Chinese currency) stops declining. With the RMB hitting an 8 year low against the dollar in November, Chinese investors and companies are even more eager to diversify overseas into other currencies. It is a cyclical pattern with American real estate at the center of it, New York possibly being the epicenter. Chinese investors invested in more than $15B USD of overseas real estate with US it’s top destination in just the first half of 2016. In October it was reported though that acquisitions of foreign asset by Chinese companies and households combines fell to $1B USD in October 2016 as compared to $20B USD in September, hence the forcing of these old and new policies. For real estate in regards to Chinese money, there is no question we are encountering change. Especially for large commercial buyers, this capital control may not mean much because the majority of real estate development investments are well below $1B USD. It all seems to be under fire, so only time will tell. With all this being said, the Chinese overseas investment on a whole is set to drop overall for the first time in 15 years due to all these new policies.*3 This does not mean for you to neglect your Chinese clients, because even with regulations, where there is a will, there is a way. More on our offerings here.
- Inman
- Forbes
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