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Chinese Investment in US Real Estate Set to Grow Substantially
Brief:A new report issued on May 16 shows that Chinese investment is going on a spree to US property.
A new report issued on May 16 by non-profit organisation Asia Society and a property consulting firm, entitled Breaking Ground: Chinese Investment in US Real Estate, claims Chinese citizens spent US$28.6 billion on homes in the US last year – a figure almost three times that of 2010 – and $8.5 billion on commercial real estate, a 15-fold increase over 2010. And the report says this growth is likely just getting started.
“This wave of investment is coming from diverse sources in China. But that’s really a small piece of the potential investor universe,” says Arthur Margon, a partner at the consulting firm and one of the authors of the report.
According to the findings, as China’s economy has begun to slow in recent years, PRC institutions have increasingly been looking abroad for investment opportunities – a trend that has intensified since the RMB began to devalue in 2014. At the same time, wealthy Chinese individuals have set their sights on foreign housing as a perceived check against political, social and economic uncertainty in the country. Real estate can also enable immigration through the EB-5 Immigrant Investor Program, which grants permanent residence to foreign nationals and their families who invest at least $500,000 and create or preserve ten full-time jobs in the US.
Cumulatively over the past five years, the research shows Chinese citizens in the US have spent an estimated $17.1 billion on commercial real estate and $93 billion on homes. The report projects that combined Chinese direct investment in existing US commercial and residential real estate could surpass $218 billion between 2016 and 2020. Mr. Margon says that much of this growth will come from new sources in China that haven’t yet tapped their investing potential. “For example, the largest [Chinese] insurance companies have been looking [at real estate], but haven’t yet been fully engaged,” he points out.
Mr. Margon claims the Chinese are “part of, but not really driving” the price increases in the US. Overall, he says, the rapid growth of Chinese investment in American real estate has, so far, been very good for the US economy. “Chinese institutions have been important in funding development while the US banking system has been recovering from the Great Recession,” he adds. “There have been very few negatives so far from this wave of capital directed at the property sector.”
The report also warns that a short-term “speed bump” in Chinese overseas investment should be expected due to economic turbulence and a likely increase in capital controls in China. But it notes that the long-term investment drivers remain: strong US demand for capital, a growing pool of increasingly wealthy Chinese investors, a $1.6 trillion Chinese insurance industry that’s invested only a fraction of funds available for real estate projects, and new Chinese investment tools like private equity funds.

Asia Asset Management

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