This year marks a devastating downturn for Chinese overseas real estate investments as it is predicted to fall 84 percent by the end of 2017 and a further 18 percent by 2018. What does this mean for New York’s real estate market? According to a Morgan Stanley report between 25 and 30 percent of real estate deals in New York are curated by Chinese investors. In 2016, out of the $33 billion invested into U.S. commercial property by Chinese investors, 43 percent went towards New York real estate projects.
Chinese regulators have cracked down on overseas investments from Chinese nationals with the aim of strengthening the country’s currency, economy, and encouraging investments in China’s economy. The regulations have capped the amount Chinese nationals can invest overseas, which not only obstructs investors’ freedom, but also has negatively impacted New York’s real estate market. Ultimately, these new regulations have hindered cash flow for many projects, leaving Chinese investors unable to close deals or even fulfill the EB-5 Visa requirements. Wendy Cai-Lee, head of the debt and equity fund Oenus Capital, told The Real Deal that the aftermath of such regulations “halted” some big deals and even prevented others going forward.
During President Xi Jinping’s first term, he implemented a number of economic reforms to bolster the economy, however, instead of working towards a free market with limited government intervention and greater international trade and investment, the country seems to be swinging in the opposite direction. China needs to spur investment within its borders, as Beijing and Shanghai’s real estate market has a large supply of empty or unfinished buildings and developers face high debt. However, is preventing investors from legally investing in overseas projects going to fix China’s looming problems?
In the view of President Xi, yes, as China’s biggest conglomerates (referred to as the gray rhinos) such as Anbang Insurance Group, Fosun International, HNA Group, and Dalian Wanda Group, who invest extravagantly overseas (especially in New York), “have borrowed so much that they could pose risks to [China’s] financial system.” The National Development and Reform Commission and the Ministry of Commerce have already created ripples in the market by scrutinizing potential overseas deals in an effort to narrow regulatory measures and prevent excessive capital outflow. The outcome? Anbang Insurance Group’s (who purchased New York’s Waldorf Astoria hotel for $2 billion) chairman Wu Xiaohui was detained by Chinese authorities and subsequently announced he was temporarily unable to fulfill his duties. The company questionably lost out on a deal to purchase the Starwood Hotels and Resorts Worldwide amidst a stock market crash in Shanghai and The Real Deal published that the conglomerate may be coerced by their government to sell the Waldorf and reinvest the funds back into the Chinese economy. This illustrates the beginning of the regulations impact on U.S. and New York real estate.
However, this does bring new players into the mix such as the Qatar Investment Authority which is funding the 1,428 feet tall 111 West 57th Street development, which is integrated into the Steinway Hall landmark. The commercial real estate company, CBRE Group predicted that because of negative interest rates, German and Japanese investors will have the opportunity to fill Chinese investors’ absence. Perhaps this drop in foreign investment in New York real estate will open the market for other nationals to dig deep into their pockets and finance big commercial real estate projects.