Since 2008, Chinese real estate investors have spent tens of billions of dollars on commercial properties in the United States. In many cases, they’ve overpaid to acquire hotels, office buildings, and empty lots to build new residential spaces.
But according to a report by the Wall Street Journal, all of that came crashing down in the second quarter of 2018. For the first time in a decade, Chinese insurers and conglomerates sold more than they acquired. Between April and June, they purchased a little less than $130 million worth of real estate, while offloading $1.29 billion worth.
Here’s a sneak peek at the quarterly acquisition and sales numbers from the past four years.
Why are Chinese real estate investors buying U.S. real estate?
“Branding is maybe the most important reason for Chinese companies to invest in U.S. commercial real estate. Chinese companies desire to be recognized as an international company,” says Li Chen, a real estate broker for Siderow Commercial Group in Manhattan.
“Real estate is one of the most popular investment channels for Chinese companies and investors. By acquiring buildings and land in the U.S., these companies build a global image, which, as a result, boosts investors’ confidence and attracts other investment.”
Their investment choices have shown this desire to build a strong image. They were most busy in 2015, with marquee acquisitions that included the Waldorf Astoria hotel in New York City.
They boost the real estate prices in certain areas, and give sellers and the market an impression of confidence.”
Why the switch?
The tide of Chinese investors purchasing commercial restate in the U.S. came shortly after Chinese government officials relaxed regulations surrounding foreign investments.
“Chinese investors have boosted the residential and commercial real estate market,” says Chen. “They boost the real estate prices in certain areas, and give sellers and the market an impression of confidence.”
In some cases, Chinese investment pushed prices too high, too fast, raising sellers’ expectations.
But in recent months and years, Beijing officials have changed their tune in an effort to stabilize the country’s currency. In 2016, for example, they announced new measures that strictly controlled foreign investments in an attempt to stop the bleeding of Chinese currency into foreign markets.
Chinese investors are adapting to other types of investment. Once they discover other ways of allocating their money, they switch to other investment fields.”
More recently, geopolitical tensions over trade and national security have likely caused Chinese real estate investors to pull back even more.
How this impacts the real estate market
It’s too early to say whether Chinese investors will continue to be net sellers in the U.S. commercial real estate market. As for now, it may just be a short-term change that can reverse at any time.
That may especially be the case if the recent pullback by Chinese investors causes real estate prices to sink, giving them an incentive to come back hard.
According to Chen, the pullback may also simply be an attempt by Chinese investors to find other lucrative investment opportunities.
“Chinese investors are adapting to other types of investment,” says Chen. “Once they discover other ways of allocating their money, they switch to other investment fields.”
If the flight from commercial real estate continues, expect to see changes in prices and overall demand in the market. But if this is just a short-term blip. An increase in acquisitions from Chinese real estate investors will likely keep the market on its recent track.
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