• China capital controls are becoming stricter.
  • Prepare for a longer time to close deals with Chinese buyers.
  • Use WeChat and partner with local firms to increase conversion rates.

China is a country of opportunities — and also of regulations.

As reported by Reuters, China’s foreign exchange regulator announced a new policy on January 1, 2017, that affects all individuals who are looking to buy overseas real estate. Chinese citizens will now have to fill out an application form stating the purpose of their foreign purchase.

As reported before, the Chinese regulator recently implemented measures to monitor institutions to acquire overseas real estate assets.

It has now become clear that China is so worried about its falling currency that it is hoping to monitor the purpose of every individual Chinese citizen who is looking to transfer money overseas.

Over the last several years, China has had the policy in place that Chinese citizens could transfer up to U.S. $50,000 legally out of mainland China.

The new directive keeps the same threshold, but individuals will now each have to fill out a form that describes the purpose of their foreign currency purchase.

The purpose cannot be real estate investment, but it can be done for purposes such as travel, education and so on.

Impact on the U.S. real estate market

The impact on the overseas real estate market is not immediately clear, as it will depend very much on the ability of China’s State Administration of Foreign Exchange (SAFE) to implement this new directive.

Also, we can have a look at the range of controls that China had put in place so far:

  • Some China banks were already monitoring the purposes of foreign exchange purchases in 2016.
  • The U.S. $50,000 per person per year limit has been in place for several years.
  • Over the last 12 to 18 months, the average purchase price of the inquiries that we have seen through eastwestproperty.com has been U.S. $870,000 — much more than the U.S. $50,000 per person per year limit.

Based on the above factors, it seems that Chinese investors continue to find ways around the controls. A large number of inquiries that went through our platform successfully closed, and some member agents reported that deals were all cash.

Conclusions

  • We do expect demand for overseas real estate to increase, as the Chinese upper class is getting increasingly nervous about both the currency weakening and the massive undertakings from the government to stop this depreciation.
  • We also expect demand for overseas real estate to increase because many Chinese investors are looking for diversification and property investments remain the No. 1 choice for many Chinese.
  • We do expect that the average purchase price will decrease in the next few years as more middle income class Mainland Chinese are looking to invest in overseas properties, and more second-tier cities and third-tier cities are being targeted (due to budget and capital controls).
  • The capital controls are indeed becoming stricter on Chinese investors. The ongoing controls and monitoring are lengthening the time it takes to complete an overseas property purchase (our study indicates it takes more than six months to get to a close).

The number of Mainland Chinese investors interested in overseas real estate is expected to increase, but it will take more time to complete any overseas real estate deal.

For American real estate agents, it will become even more important to maintain a good relationship with a Chinese buyer — communication with partners in China and use of WeChat are key tools.

Sam Van Horebeek is a director at East-West Property Advisors, a U.S. real estate platform based in China. You can follow on Facebook and Twitter.

Email Sam Van Horebeek.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×