Shutting Down the Money – Chinese Real Estate Investments Dry Up

In surprising real estate trends, China’s investments in the U.S. real estate market are speedily drying up. A recent Cushman and Wakefield report highlighted the trend, noting a drop from $16.2-billion to $7.3-billion in 2016, and estimating a 55% drop in commercial real estate investments in 2017.

Why are Times Changing?
The unusually hasty retreat has been fueled by at least two factors:

Beijing’s Leaders Restricting the Flow of Cash Out of the Country
In August, China’s State Council imposed new regulations on outbound investments designed to keep capital at home and reduce the risk of runaway debt. With a massive impact on real estate trends, the move highlights the potentially dramatic effects of state-directed capitalism. Ordered by the government to sell or dispose of foreign properties, investors from state-controlled conglomerates are selling rapidly after acquisition – in some cases, before building.

Federal EB-5 Program Funding Drops, Limiting Green Card Access
The federal EB-5 program, which allows foreigners to apply for U.S. citizenship in exchange for investing $500,000 or more in a business that makes or preserves at least 10 jobs, is losing fuel. With a huge drop-off in funding, EB-5 cash from China has dropped to just 28% of its normal flow compared to the three preceding years. In the past, the millions of dollars raised in the green card program have funded major projects, including the Courtyard Los Angeles L.A. Live and the Dream Hotel complex in Hollywood.

Big Picture
Though the drop is dramatic, Cushman and Wakefield still predict Chinese capital will continue to play a significant role in the U.S. economy. Despite pulling back on new purchases, Chinese investors are not jumping ship, and are still buying more than they’re selling. However a shift is being seen, from state-controlled conglomerates to very high net worth individuals.

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