A new trend is hitting the real estate market, and it may not be the trend that American real estate experts were hoping for.
Due to regulations introduced in China earlier this year, Chinese investments in foreign countries have become more and more difficult. The reason for the new sanctions come with a two-fold answer: domestic economic growth is slowing as Chinese moguls look to invest in properties around the globe, making Chinese officials eager to cap foreign investment amounts in order to keep profits local.
If you’re wondering why this should come as a disappointment in American real estate, keep this statistic in mind: in 2016 alone, Chinese real estate investors made up 29% of total foreign investment in U.S. commercial real estate, with a record high of $19.2 billion (yes, billion with a b) in deal volumes. And if that number is surprising to you, also keep in mind that these numbers are a 10% jump from Chinese investments in 2015. With all trends pointing upwards, the new cap on foreign investments in China puts all of those hopeful projections for 2017 on hold in the U.S.
The Chinese Hold on the U.S. Market
According to a recent report by Business Insider, Asia produces a new billionaire every week, with 71% of those billionaires coming from China. Until now, these billionaires have been eager to grow their wealth, looking at the highly competitive real estate market in the U.S. as a potential goldmine for their newfound capital.
It’s also been reported that in 2016 alone, New York City received a whopping 46% of total Chinese investments, making these new regulations a solid hit on the New York market. San Francisco and the Bay Area enjoyed 15% of total Chinese investments as well, with L.A. and Chicago receiving 7% and 5% of total investments, respectively. In these growing markets, continued high-dollar investments are crucial to competition and value, with the potential loss of future business putting some fear in real estate experts looking to enjoy more growth in 2017.
New Rules, New Tools
With investments being capped at only $50,000, U.S. real estate experts can say goodbye to cash-only deals and the flooding of paid-in-full offers from Chinese investors. With the majority of Chinese money “stuck” in mainland China due to this cap and further regulations, U.S. lenders are seeing fast-rising trends in traditional financing. Over the past few years, only 20% of Chinese buyers used mortgages from a U.S. lender to fund their commercial real estate investments. With new rules in place, however, sources say that this is about to change- and quickly.
Looking ahead in 2017, U.S. real estate experts are hoping that these regulations don’t lead to major losses in revenue, but are preparing for creative solutions to keep business deals growing. With the Chinese having a huge hold on the U.S. economy, or a 29% hold to be exact, the U.S. continues to rely on foreign investments as a major source of economic support. Any changes to that support system could have implications that the U.S. has not seen for some time. And as Chinese investors continue working to find ways around investment caps, it appears that the U.S. real estate market and Chinese investors are still attempting to work together in order to keep those losses from devastating either side of future deals.
Scott Prephan originally published this piece on his website.
