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July 24, 2017

Multibillion-dollar buying spree by Chinese investors shows signs of slowing

A cooling economy and government regulations putting brakes on investment in U.S. real estate

China has become the dominant global power when it comes to overseas real estate investment. According to data from JLL, a global commercial real estate service, the county became the worldwide leader in cross-border real estate investment, hitting $33 billion in overseas commercial and retail investment in 2016. Much of that money is fueling development in the U.S., according to Cushman & Wakefield, making up 29 percent of the total foreign investment in this country’s commercial real estate markets, or $19.2 billion. Hotel investment alone totaled $8.6 billion.

But could that huge capital flow and financing source for U.S. developers begin to dry up? Many analysts and researchers are seeing signs these record-setting investments may be slowing down, especially in the first nine months of the year 2017, which may have a cooling effect on some of the larger U.S. real estate markets.

Due to a combination of new capital restrictions and the prospect of a slower economy, total Chinese investment may drop by as much as 20 percent this year, according to property search site Juwai. Government capital controls and investigations are also hamstringing investors. According to Real Deal,Chinese officials have been investigating some of the largest investors, such as Anbang Insurance Group, HNA Group, and Fosun International, which have collectively poured billions into the U.S. The Dalian Wanda investment group has also faced serious restrictions, with regulators scrutinizing many of its biggest deals from the previous year.

Four of the top ten foreign real estate deals last year featured Chinese investors.
 Cushman & Wakefield

The recent rise in Chinese foreign investment parallels economic growth, and challenges, at home. China’s growing prosperity and expanding middle class, as well as volatile and competitive domestic investment opportunities, have been fueling a massive overseas investment spree. As the investor class grows, the focus has shifted, from second homes and places to park cash to investments that generate rental income and appreciation, according to James Fisher, director at Spacious, a Hong Kong-based online real estate platform.

In the last decade, the surge in new investment has been meteoric. According to CNBC, Chinese foreign real estate investment rose from just $1 billion in 2007 to today’s record-setting numbers. Higher-priced U.S. markets have been prime targets of Chinese buyers, including LA, Miami, New York, San Francisco and Seattle, in addition to Hong Kong, Australia, and the U.K.

If Chinese real estate investment slows down significantly, the biggest impact would, not surprisingly, be felt in bigger coastal cities. New York makes up 46 percent of the total transaction volume of Chinese commercial investments, according to Cushman & Wakefield, while San Francisco has seen a dramatic uptick in Chinese investment, from $464 million in 2013 to $2.9 billion in 2016.

Chinese commercial real estate investment in the U.S. is concentrated on the coasts.
 Cushman & Wakefield.

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