What’s Next for Chinese Outbound Real Estate Investment

How Have China’s Capital Outflow Restrictions Impacted Outbound Real Estate Investment?

Chinese outbound real estate investment has shown momentous year-on-year growth, with China topping the leader board as the largest cross-border real estate investor in 2016. Yet China’s tightening restrictions on capital outflows, particularly in the property and leisure sectors, are changing the volume of deals and the types of investment.

Partners from our Real Estate and Hospitality and Leisure practices recently met in Hong Kong for the annual Hotel Investment Conference Asia Pacific. Much of the conversation during the conference focused on the upward trend in Chinese outbound real estate investment. Is it sustainable, or are there indications investors are feeling more cautious?

Our partners’ perspectives on:

The EB-5 program

“The EB-5 program, through which foreign citizens can apply for a U.S. green card if they invest in projects that generate U.S. jobs, has become such a popular program that there is a backlog of claims waiting to be processed by government departments. Our clients that partner with EB-5 investors aren’t struggling to find an ongoing source of capital, but there are concerns over the long-term viability of EB-5 investments because of the governance structures around that investment.”

Eric Landau
Chair, Global Real Estate Practice

The impact of China’s tightening controls on capital outflow into the U.S. real estate sector

“Chinese investment accounts for US$1.5 trillion in U.S. Treasury securities and it is in China’s interests to sustain its big bet. The economies are closely interrelated and it is in both countries’ interests to work together.”

Philip Feder
Partner, Global Real Estate Practice

The shift toward more strategic hospitality investments

“Over recent years we’ve seen that Chinese investment has been quite aggressive in gateway cities and iconic buildings. We are now seeing a trend toward more strategic investments such as stakes in hospitality businesses, rather than individual hotels.”

Rick Kirkbride
Chair, Global Hospitality and Leisure Practice

Common misconceptions about Chinese outbound investment

“The recent Chinese State Council investment guidelines classify outbound investments as either encouraged, restricted or prohibited. While real estate is a restricted outbound investment, there still exists significant room for outbound real estate investment that aligns with China’s national policies and strategy. We expect that, particularly with respect to large Chinese institutional investors, their sophistication in identifying outbound investment opportunities and their need to diversify coupled with their deep understanding of how their businesses fit with the government’s strategy will allow them to continue to be significant outbound real estate players.”

David Blumenfeld
Chair, Asia Real Estate and Asia Hospitality and Leisure Practices

China’s outbound investment policy

“Policy on capital control is not likely to change in the short term, but capital control does not mean the Beijing government will simply block outbound real estate investment. However, private enterprises may in future face higher degrees of scrutiny than state-owned enterprises. It will fall to regulatory bodies such as the Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC) and China Insurance Regulatory Commission (CIRC) to set the specific controls as well as approval and/or filing process.”

Paul Guan
Partner, Asia Real Estate Practice