The View | Chinese demand for offshore property investment will rebound – with or without a trade war

Some commentators have linked the slowdown in China’s outbound property investment to US-China trade tensions. However, the slowdown of Chinese investment in real estate in the West and the recent disposals of American commercial property by Chinese companies are not due to geopolitics but rather a combination of industry dynamics, economic forces and Chinese domestic concerns.

According to the United States’ National Association of Realtors, Chinese buyers accounted for 14 per cent of all international residential real estate transactions in the US and 20 per cent of the total commercial real estate purchases in 2017. This compares to the low single-digit contribution witnessed in the prior decade. Over the years, the Chinese have invested billions in American commercial real estate, with one estimate putting it at US$54 billion since 2000. Chinese entities’ share of property transactions reached such disproportionately high levels that a cool-down was inevitable.

A clear message that the Chinese exuberance for outbound investment would not be sustainable was delivered in 2016 when the Chinese authorities increased restrictions on the ability of domestic firms and individuals to transfer money out of the country. These measures were aimed at stemming the outflow of wealth into foreign property and other non-strategic sectors, so as to protect the domestic financial system. The capital controls were steadily tightened throughout 2017 and remain tight in 2018.

China’s policy of taming major state-owned enterprises which had binged on debt also played a role. Firms such as Anbang Insurance, Dalian Wanda and HNA Group have all been forced by the authorities to unwind their debt-laden property portfolios in high-profile markets such as New York, London and even Hong Kong.