What impact might China’s capital controls have on global property?

3 possible scenarios to look out for

China is renewing its campaign to constrict capital outflows.

The mainland is abuzz with speculation that Beijing will deepen its scrutiny of outbound investments. Real estate deals totaling more than USD1 billion will face particularly strict monitoring, Forbes reported.

Clues to such new policies came last week in a joint announcement by China’s National Development and Reform Commission, The People’s Bank of China, The Ministry of Commerce, and The State Administration of Foreign Exchange.

Here are three scenarios that could unfold if the rumored capital controls were to come to fruition:

Shift in demand

Approval periods will certainly lengthen for Chinese property buyers once the clampdown is in place. This will spell heightened demand for core commercial assets in domestic tier I and selected tier II cities, said Sam Xie, head of research for Asia Pacific and China at CBRE. “The prolonged low interest rate environment continues to motivate Chinese investors to purchase commercial assets in the domestic market.”

More: Has China fallen out of love with American real estate?

US real estate might be unscathed

A billion dollars is still a relatively high threshold for capital controls, given that 70 percent of Chinese outbound property deals between 2013 and the first half of 2016 were worth below this limit, according to Julian Jiang, associate director of China research at CBRE. “Once the expected new restrictions are in place, Chinese investors may simply opt to engage in a higher number of smaller deals below the stipulated maximum investment amount,” he said. For perspective, the minimum property investment to obtain an EB-5 immigration visa in the US is only between USD500,000 and USD800,000.

Smaller deals in Europe and Asia

Capital controls will most certainly reduce the sizes of Chinese deals in Europe and Asia. Six of the 10 largest outbound property transactions in the past three years were by Chinese state-owned enterprises (SOEs), and they mostly transpired in these regions, according to CBRE. “Any restrictions on transaction size would force SOEs to reduce the size of their acquisitions and adopt a more careful and strategic approach,” Xie opined.

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Source: Property Report