Chinese home buyers last year ponied up much less cash in the US as the trade war continues to escalate between the two superpowers.
As Presidents Donald Trump and Xi Jinping are set to meet this week, there are speculated worries that the decline in spending could extend further more.
The US property sales to Chinese buyers dropped by 4% from 2017 to 2018, according to a study conducted on Juwai.com, China’s leading property sales website.
“The worsening trade relationship between China and the US may cause Chinese investors to shift their presence into other key markets,” property consultancy Knight Frank said in a report. It suggested that investment can go to leading countries like Australia, Japan, and the United Kingdom instead, according to the company’s 2019 report.
American real estate has been struggling with overall international investors. All international spending on US homes fell by 25% in 2018, according to Juwai.com.
US homes have been a long time favourite of the Chinese, but due to the increasing trade tensions between the two nations, China has kept tight controls on money leaving the country.
Trade war and warnings on travel:
As the trade war between America and China has been going on since almost over a year now, “Chinese buyer enquiries for US property were down in four out of the five last quarters,” said Juwai.com CEO Carrie Law.
“In the first quarter (of 2019), Chinese buyer enquiries on U.S. property were down 27.5% from a year earlier,” she said. “Meanwhile, they were up in Canada, the UK, Australia, and Japan, all of which are often considered alternative destinations to the United States.”
Although, the trade war isn’t the only thing causing a decline in the economy. The war has increased pressure on US-China travel as well.
“Travel warnings are part of an overall environment of negativity between the two countries that is discouraging Chinese property buyers from investing in the U.S.” Law said.
In January 2019, the US Department of State issues a travel warning on China, suggesting citizens visiting China to “exercise increased caution in China due to arbitrary enforcement of local laws as well as special restrictions on dual U.S.-Chinese nationals.” China then responded by issuing a safety warning in June for Chinese citizens and companies in the U.S. to “raise awareness, strengthen preventative measures and respond properly” when travelling and doing business in the United States.
It is all a pattern that’s making the United States a less appealing destination for the Chinese investors.
“We call it the Trump Effect. It’s a combination of anti-Chinese political rhetoric, a clamp-down on visa processing, and of course tariffs,” Law said.
“The Trump Effect is undercutting some of the primary drivers of Chinese demand for US property” and hurting “the country’s reputation as a safe investment,” she added.
Some experts believe that the decline of Chinese property buyers in the US can also be a consequence of internal pressure in China.
Neil Brookes, Asia Pacific head of capital partners at Knight Frank said that last week that Chinese outbound capital fell 83% in 12 months, “largely due to trade wars and the government trying to stop money leaving the country.”
In the past two years, China has been putting restrictions on the capital outflows of the country, which “has cast a shadow over outbound investment,” according to a report by Knight Frank.
The commencement of these stricter rules has been partly driven by Beijing’s concerns about slipping foreign exchange reserves, which the Chinese government uses to maintain the values of their currency, yuan. The government has said its crackdown on capital crossing its borders is also part of an attempt to stem graft.
Foreign home ownership has since then been “classified as a sensitive sector,” according to the Knight Frank 2019 Wealth Report. In other words, investments into “overseas property markets require stringent official approval,” and may attract unwanted attention.
Despite the declines in property expenditure, it is observed that Chinese spending is actually more in the US.
According to the US Nationa Travel and Tourism Office, there was a decline in visitors from China in 2018, from 3.2 million to 2.9 million. Those who did visit the country, however, spent more than ever before.
In fact, international visitors from China spent $36.4 billion in the United States in 2018, an increase of 3% when compared to the previous record set in 2017.
The health of the U.S.-China tourist trade may point to a significant cushion for Chinese investment into the United States. And, looking ahead, Law said she expects purchasing American homes will remain attractive to many Chinese.
“Chinese will always be substantial buyers of US property and even now are probably still the largest foreign buyer group in the country,” she said.
“The thing that makes buyers most nervous is uncertainty,” Law added. “If the trade war simply becomes the new normal, or if it is resolved on good terms, you will likely see an increase in Chinese buying in the US. There is still tremendous demand for the US property. It is still the most liquid and appealing market in the world.”
Investors will get their next indication of the trade war’s future when Trump and Xi meet later this week at the G-20 Summit in Japan. The U.S. president has said he’ll make a determination about potential new tariffs soon thereafter.