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China’s Love Affair with U.S. Property is Far From Over
Brief:Chinese demand for U.S. real estate hasn’t been diminished regardless of the economic downturn.
Despite of the comparatively slower development in economy, Chinese demand for U.S. real estate has not been decreased, especially in New York City.
 
In recent years, Chinese developers and lenders have stayed particularly busy in Manhattan, the unofficial capital of one of the largest gateway cities in the U.S.
 
The Beijing-based insurer Anbang Insurance Group completed its acquisition of the Waldorf Astoria New York in February 2015, while a rapidly growing real estate firm has snapped up five sites for luxury condominium projects in the past two years—its latest acquisition at 143-161 East 60th Street for $300 million. At the same time, Bank of China has remained among the most active lenders in the city.
 
Year to date, Chinese investment in Manhattan real estate has reached $4.4 billion—including the $1.95 billion Waldorf Astoria purchase—up from $645 million in 2014. It’s the clearest signal that Chinese enthusiasm for New York properties has not waned.
 
“Chinese developers will continue to invest in foreign markets because it’s still difficult for them to raise funds domestically,” said Andrew Polk, an economist at the Conference Board who is based in Beijing. “There is still an interest-rate differential between China and the U.S., despite the fact that the gap has shrunk.”
 
The gradual loosening of financial rules imposed on China, however, gave the country’s insurance industry a lift. In 2012, regulators eased rules for Chinese insurers to diversify their portfolios, and be able to hedge against risks from local construction loans on housing developments.
 
Just last year, the China Insurance Regulatory Commission bumped up the limit on insurers’ real estate investments to 30 percent of their total assets. That opened the door for such firms to deploy capital in the U.S., as evidenced by China Life Insurance Company and Ping An Insurance Group’s first investments overseas, in Boston’s Seaport District.
 
As of Dec. 9, China’s yuan closed at 6.4378 per U.S. dollar on the mainland, hitting a four-year low. The PBOC set a midpoint rate at 6.42 before the market opened on Dec. 10, marking its lowest level in more than four years.
 
While yuan devaluation makes overseas acquisitions and loan repayment more expensive for mainland borrowers, industry insiders noted that it’s not a game changer.
 
“Compared to other currencies, the changes in the value of the yuan versus the U.S. dollar have been relatively measured,” said Sam Chandan, the founder and chief economist of  a leading provider of data and analytics on real estate and a columnist for this publication. “At least at this point, institutional demand from China into the New York City market remains reasonably healthy.”
 
Additionally, Chinese investors have been targeting U.S. neighborhoods with high concentrations of Chinese American communities. Those investors are now branching out to smaller markets amid growing concerns over aggressive real estate pricing in major cities.
 
Recently, China earned IMF’s green light to join its elite club of currencies. As the country inches toward a more liberalized financial system and looks to establish the yuan as a global reserve currency, experts say that will likely trump the impact of the slowdown in China’s economy.
 
“The U.S. real estate investment is a rainy-day fund and hedge against both risks about the Chinese market slowdown but also uncertainty about fears of being swept up in the anti-corruption campaign,” said Joseph Foudy, an economics professor at New York University. “Keeping a percentage of their net worth outside the country and safe is more important than a particular financial return on their real estate investment.”
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