U.S. luxury real estate may feel the heat as China redoubles its efforts to halt the massive outflow of money leaving the country. The sector has been a favorite of Chinese investors looking for a safe haven for their assets. “[The effect] could be dramatic, if they actually curtail,” said Brad Inman, founder and owner of real estate industry news website Inman. Last week, in a panel discussion at Inman Connect, an industry conference in New York City, he listed China, the U.S. presidential election and Wall Street volatility as three factors that will have a major impact on the property market this year. Brokers are already experiencing anxiety about the possible ripple effects of China’s efforts to halt the flight of money from its borders.
“China’s investors’ ability to move funds out of the country will be limited, although their desire to do so has increased tremendously,” said Jacques Cohen, an agent at real estate brokerage Compass. But Svenja Gudell, chief economist at property portal Zillow, believes that China’s efforts will result in some softening of demand in the broad housing market, but have no significant effect on the luxury sector. “The serious investor, often having foreign income streams and being much more savvy at circumventing any rules around capital outflows, will have an easier time investing in the U.S. market. To that investor, the U.S. market is a safe haven, despite real estate having become much more expensive over the last few years,” Gudell told Mansion Global. Although Chinese buyers account for less than 2% in overall U.S. real estate sales, they are more concentrated in the high-end market. They purchase more than 7% of all homes valued at $1 million and above. In addition, one out of four Chinese investors buys in this price range, according to Gay Cororaton, research economist for the National Association of Realtors. Chinese buyers invested a total of $28.6 billion in U.S. properties in the year ending March 2015. International real estate markets have become more appealing to Chinese investors as they face the country's economic slowdown, stock market turmoil and depreciation of the yuan. Data compiled by Bloomberg Intelligence shows that China’s capital outflows amounted to $158.7 billion in December, with the estimated 2015 total reaching $1 trillion. China has launched a number of initiatives to curb capital outpouring and is actively seeking cooperation from foreign governments and major international financial institutions in these efforts. Last week, multinational bank HSBC confirmed to Mansion Global that it had stopped providing mortgage loans to certain Chinese buyers in the U.S.According to The Wall Street Journal, China’s latest steps to curb capital outflow involve limiting the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investments. Many believe, however, that China’s increased scrutiny and regulation of capital outflow is a temporary condition. Charles Pittar, CEO of Chinese international property portal Juwai.com, said in a written statement that “Our contacts in the industry say the same: Whatever happens in the short term, in the medium term Beijing is committed to removing capital controls, not doubling down on them.”