A crack down has officially begun last Friday, following a most recent economic policy decision from the Chinese government. In a singular and powerful move, Chinese regulators released a document that seeks to limit foreign investments in many sectors from hotels to entertainment. Overseas acquisitions in real estate are part of these regulations. The new policy is expected to deal a huge blow to New York real estate where—according to Bloomberg—30% of this year’s contracts were signed by Chinese investors.
Their importance as players in the real estate industry cannot be denied. Last year, 43% of Chinese foreign real estate investments were directed towards U.S. properties. Cutting off these investors would mean not only less transactions but also the loss of a huge and lucrative consumer base that has contributed to the market’s overall activity.
Cracking Down on “Irrational Acquisitions”
“Irrational”—the word used by Chinese regulators to describe foreign acquisitions that carry the risk of weighing down their companies with excessive debt. The implementation of the newly released document was seen as their solution to eliminate these risks and regulate the amount of capital outflow.
“Some companies focused on property rather than the real economy, which, instead of boosting the domestic economy, triggered capital outflows and shook the financial security,” members of China’s top economic planning body stated in justification, according to a report by Bloomberg.
Analysts have already made predictions on how these new regulations will affect Chinese economic activity. According to a Morgan Stanley report, the numbers show an estimated 84% decline in Chinese foreign real estate investment by the end of 2017, followed by an additional 18% drop in 2018.
Impacts in New York Real Estate
New York’s real estate market has already been feeling the effects of these new regulations. As Chinese President Xi Jinping continues to make economic reforms which will lead to a stronger hold of top state enterprises, Chinese conglomerates have already started limiting their activities abroad. Some of these conglomerates include big names such as Wanda, Anbang Insurance, Fosun International and the HNA group.
Case in point—Anbang Insurance has just recently backed out of a deal with Kushner Companies and Vornado Realty Trust, apparently for “unclear reasons.” At the same time, Anbang is now facing the possibility of selling the Waldorf Astoria Hotel and then repatriating the funds from it.
Although numbers reveal expected decreases in Chinese investments directed towards U.S. real estate, it is still too early to tell the overall impacts in the market. Chinese economic regulations, however, are known to be very strict in implementation, especially as analysts continue to worry over China’s economic bubble. In the mean time, expect to see less signatures made by Chinese investors in contracts, moving forward.