The Real Deal New York

Will capital controls kill Chinese investment in US real estate?

Developers at The Real Deal’s Shanghai forum maintain bullish stances
By Will Parker | November 03, 2017 11:30AM

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The Chinese government in August released a new round of controls on outbound investment that are expected to even further slow the flow Chinese money into U.S. real estate, after overseas property investments from China slid 82 percent in the first half of this year, according to figures from the Ministry of Commerce. Moreover, the Chinese Yuan Renminbi is getting stronger, which could potentially throw investors off of previous strategies.

So what’s the current outlook for North American developers drawing on Chinese wealth to build new projects? The view from the The Real Deal’s annual Shanghai event, where developers faced a mostly local audience, was unsurprisingly optimistic.

Christopher Wein of Great Gulf, one of Canada’s most prominent builders, acknowledged the new challenges posed by regulations but pressed that the restrictions on real estate investment were not a deal breaker. “Any monetary or policy changes that occur are short-term changes not long-term changes,” Wein said, adding that exchange rates shouldn’t be a factor at all.

Other participants in the Friday panel seemed less interested in engaging the specific challenges of the new regulations, instead making the pitch that now is as good a time as any to shovel money their way.

“What we’re seeing is not a pull back at all, but maybe more targeted investment,” said Brett Mufson, director of acquisitions at Witkoff Group. Yi Bao, founder of Cedarlake Capital pushed Mufson, on that response, but Mufson insisted he’s seeing more — not less — Chinese investment.

There’s some evidence to back that up, too. At least for small-sized, single-family residential investments, the volume of deals is indeed rising, according to a Knight Frank analysis of home sales reported by Bloomberg.

Jenny Zhang, senior vice president at wealth management consultant CreditEase, said that China’s outbound investment is behind other Asian economies, such as Japan and South Korea, with only about 4 percent of its total wealth being invested in foreign nations. “There’s more room to grow,” she said.

But the shakeup in investment guidelines coming from the Chinese government is only one side of the policy issue. The ascension of President Trump has left some prospective investors questioning whether their money will be welcome. Developer Sharif El-Gamal, however, said that he saw Trump’s election as an opportunity for investment, with one possible caveat. “The only thing that can hurt us is if [we close] our border and close our doors,” he said.

The panelists also offered tips to prospective Chinese investors looking to enter the American market for the first time. Sharif El-Gamal, who is trying to pull off a new hotel near Times Square, made the case for hospitality development. Property Markets Group’s Ryan Shear boiled the choices down to what level of risk a given investor is willing to live with. And Wein cautioned against doing deals with too much debt.

“If you’re leveraging to buy stuff… be careful,” he said.