Mansions geared towards Chinese buyers — some featuring crystal chandeliers, marble floors and no fewer than eight bedrooms — were at one point selling like hot cakes in the San Gabriel Valley.
But more recently, as Chinese investors face stricter guidelines back home, homes have spent months sitting on the market with no takers.
While Chinese banks began cracking down on requests for foreign currency in 2015, a recent move by China’s State Administration of Foreign Exchange to enact stricter guidelines is starting to have broader effects on L.A.’s residential market, the Los Angeles Times reported.
“[Stricter capital] controls mean the Southern California real estate market, especially for luxury homes, will be less attractive because that money is stuck in China,”William Yu, an economist at UCLA, told the L.A. Times.
Cash sales in the San Gabriel Valley, a hot destination for Chinese home buyers, fell 17 percent between 2014 and 2016, according to the Times. Cash sales for L.A. county dropped by 12 percent during the same period.
The foreign exchange administration, which exchanges Chines yuan for dollars, recently demanded its Chinese customers to pledge not to invest in foreign property and detail how their foreign funds will be used. New rules also prevent customers from exchanging currency on behalf of someone else. This has blocked a longtime workaround to the administration’s $50,000 per person limit, wherein citizens would convince family and friends to draw out cash.
The recent steps are an attempt by Chinese regulators to stop the bleeding from capital flight. Citizens must draw from the country’s foreign exchange reserves which peaked at $4 trillion in 2014 but is now at $1 trillion, according to the Times.
But the slowdown could give local residents an advantage, said broker Brent Chang of Compass, who is based in San Marino.
“Domestic buyers can now purchase here and not get blown out of the water,” he said.
Yet, broker Dee Chou of Coldwell Banker said it’s just a matter of time before Chinese buyers find a way around the strict regulations. Chou’s listing for a $9.8 million property on Fallen Leaf Road in Arcadia has been on the market for more than two months, the Times reported.
“Rich people will always find a way to get their money out,” Chou said. [LAT] — Subrina Hudson