Chinese investment into the U.S. has been increasing rapidly in recent years. 2013 was a landmark year, in which Chinese outbound direct investment exceeded U.S. investment into China for the first time. By 2015, Chinese investors had sourced $350 billion into U.S. commercial and residential properties and investments. Indeed, real estate is the U.S. business sector that has attracted the most Chinese investment by far.
A report by the Asia Society and Rosen Consulting group predicts that Chinese direct investment into existing U.S. commercial and residential real estate will reach $218 billion in the next five years and will accelerate upward through 2025. Notably, the numbers are likely even higher, as this study only focused on easily-tracked investments, excluding inbound capital flow through vehicles such as partnerships, private equity funds, and limited liability corporations.
Concerned about the outbound flow of capital, the Chinese government has gone to efforts to suppress outbound investment as it aims to boost its own economy. Chinese banks are on the lookout for the over-invoicing of exports, which has proven to be a common tactic for taking money out of China. Additionally, state-owned banks are watching for “unusual transactions” that indicate individuals are pooling together funds to purchase real estate. Furthermore, China currently imposes a foreign investment cap of the equivalent of $50,000 per individual per year.
Despite Beijing’s best effort to control outbound investment, the flow of capital out of China might be temporarily slowed, but it will not be brought to a halt. Demand to bring Chinese money into the U.S. is as high as ever, demonstrated by the 5-year waitlist for U.S. E-B5 foreign investment visas, of which more than 80% have been granted to Chinese. Rosen Consulting posits that investment by the Chinese elite in U.S. real estate will only increase as investment vehicles such as real estate investment funds and private equity funds focused on real estate–which are quite new in China–gain popularity with the Chinese at home.
Further, Rosen Consulting predicts that the purchase of U.S. homes by wealthy Chinese could accelerate if they are provided with increased access to financing. While between 2013 and 2015, 71% of U.S. home purchases by Chinese were in cash, those statistics could change as strict post-financial crisis lending criteria are loosened in the coming years.
Although Beijing may heavily criticize outbound investment in the short term, at the end of the day, China is eager to play an increasingly involved role in the global economy. We can expect that in the long run, Chinese foreign investment in the U.S. will only increase. In fact, Rosen Consulting predicts that in the next 10 years, the volume of Chinese commercial real estate acquisition will more than double.