Will China’s New Foreign Exchange Policy Affect The Global Real Estate Market?

China is a land of opportunities as well as regulations. According to Reuters, China’s foreign exchange regulator has announced a new policy that will be effective on January 01, 2017. The policy will affect all individuals who are planning to buy overseas real estate. Chinese citizens are required to fill out an application that will state their reason for the foreign purchase. Measures are also being implemented to monitor institutions that acquire real estate assets in another country.

China’s Yuan is falling that is why there is a need to monitor the purposes of its citizen when they transfer money overseas. Over the last few years, China has implemented a policy that Chinese citizens could only transfer US$50,000 legally out of Mainland China. The threshold is kept in the new directive but Chinese citizens are now required to provide the purpose for foreign currency purchase. Purpose can either be for travel or education but not for real estate investment.

The impact on the global real estate market is not clear because everything depends on how China’s Administration of Foreign Exchange can implement the latest directive. However, it seems that Chinese investors have found a way to go around the imposed controls because China banks were already monitoring purposes of foreign exchange purchases since 2016.

The US$50,000 limit has been in place for years but over the last 12 to 18 months, the average purchase price of inquiries through eastwestproperty.com was US$870,000 which is a lot more than the limit. Some of the inquiries have been reportedly closed and payments made in cash. Even if capital controls have become stricter for Chinese investors, demand for overseas real estate is expected to increase as investors diversify their investment portfolios. Property investment remains to be the number one choice of Chinese investors particularly the upper class who is worried about the weakening of the Chinese Yuan.

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