By Jacob Bourne
According to a February news report by Realogics Sotheby’s International Realty, at the end of 2016, China’s State Administration of Foreign Exchange tightened controls on capital exiting the country in an effort to stabilize the currency. So far, RSIR brokers have anecdotally asserted that though these restrictions have dampened cash transactions, loans for real estate investments have increased.
“There’ve been some speed bumps with the recent Chinese government policy,” said Dean Jones, principal & owner, RSIR. “However the current policy is not going to change the big picture. Demand is strong and international interest is like a circular reference that accelerates it. Seattle-Bellevue is Vancouver déjà vu or San Francisco 2.0. The market is behaving in a similar fashion but just about 15 years behind. It’s like an awakening.”
Seattle recently experienced a bump in foreign investment interest due to changes coming from north of the border. On February 7, the Wall Street Journal reported that the City of Vancouver implemented a 15-percent foreign buyer tax, effectively diverting Chinese investment demand south. With its tech boom, Seattle is currently the fastest growing housing market in the nation, but it’s small size relative to San Francisco and Los Angeles generally allow for fewer foreign investment opportunities.
Yang Chen, vice president at Colliers International explained that U.S. gateway cities like San Francisco, Los Angeles and New York continue to be very attractive to Chinese investors because they’re inexpensive relative to other gateway cities such as London, Shanghai and Singapore. She views the long term outlook for investment in San Francisco to be positive because it remains the heart of innovation with the presence of tech companies, Stanford University and University California, Berkeley. In addition to the Bay Area’s historically robust tourism industry, travel from mainland China to San Francisco and San Jose has been bolstered by China Eastern, Hainan and Air China expansions, which include more direct flights.
“On the macro-level, China is still encouraging global investments and the general flow of investment out of the country,” said Chen. “On the micro-level, government policies are always changing. The government is adapting to trends to find a balance between outflow and control. It’s challenging for companies who want to invest in the U.S. and also a challenge on the seller side.”
As an example that Chinese capital will likely continue to flow to the region in 2017, Chen cited the recent purchase of the 123 Mission Street office tower by HNA Group and that another major deal by a mainland Chinese investor is on the horizon. As the Chinese government attempts to control risk by use of restrictions, natural fluctuations will ensue, eliciting more liberal policies in response.
“The Chinese government has made guidelines for getting money out of China more strict than ever before,” commented Skip Whitney, executive vice president, Kidder Mathews. “You can get money out but it’s harder. However, companies had already been setting up operations in offshore accounts as part of the normal course of facilitating business transactions. My projection is that Chinese capital is definitely here to stay. The biggest limitation is finding new home for the capital.”
From Whitney’s perspective, the first choice of Chinese investors is residential real estate development, but with Seattle’s market in a frothy state, it’s difficult for foreign investors to penetrate. Because of this reality for Seattle, and to some degree San Francisco, investors are seeking partnerships with local developers who know what’s happening on the ground. With the limitations of these markets, some of Kidder Mathews’ clients have also been looking at opportunities in places like Sacramento.
Changes in the U.S. political landscape may prove to be another hurdle, but won’t be able to reverse the global significance of cities like San Francisco and Seattle and the corresponding demand from foreign investment. Nonetheless, greater immigration restrictions called for by the Trump administration, have left some Chinese investors and immigrants wondering if there’s cause for concern about the future of the H-1B visa program and overall investment outlook.
“One of the attractive things about the U.S. has long been the level of confidence in the stability of the market, but with recent political events, it really raises questions about the stability and what foreign relations will be, just as Canada is asking the same questions, for instance,” Chen said.