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What’s Next for Chinese Outbound Real Estate Investment

In 2016, China’s total overseas investment into commercial real estate reached US$38.3 billion—a record high, and an increase of 49 percent from 2015. What major trends drove that growth—and will they continue this year? What role have U.S. and Chinese regulations played in deal structuring? What challenges now face Chinese investors as a result of increased restrictions on capital outflow? And what is the outlook for 2017?

Real Estate partners David Blumenfeld and Paul Guan recently shared their perspectives on these critical questions during a panel discussion hosted by The American Chamber of Commerce in Hong Kong.

 

Key Insights from Our Partners

China’s tightening on capital outflows

While Chinese outbound real estate investors were very active in 2016, China’s tightening of controls on overseas investments toward the end of the year did impact the fluidity of deals. This tightening will continue to play a role in deals in 2017—at least in the first half of the year.

Regulatory and compliance challenges

2017 is expected to be a year in which global and local regulatory and political environments will undergo change. This will almost certainly impact outbound Chinese investors. As they pursue complex overseas acquisitions, including acquisitions of regulated businesses, in many western markets (particularly the U.S.) investors will need to factor in potential regulatory and compliance challenges—and will be forced to think strategically in order to continue to be successful.

What to expect in 2017

Chinese investors’ appetite for outbound acquisition opportunities remains strong in many sectors, including real estate, logistics, and hospitality. In the short term, we expect deal flow to be significantly impacted by the Chinese government’s tightened outbound capital controls. In the medium to long term, however, we expect that the government will continue to reduce and streamline the regulatory controls applicable to outbound investment as well as to the convertibility of the RMB, and that sophisticated institutional investors will still be allowed, if not encouraged, by the government to pursue strategic outbound investment opportunities.

While we will continue to see a significant amount of Chinese outbound real estate activity in the U.S. and UK markets, we also expect to see more intra-Asia deals in markets such as Vietnam, Indonesia, Hong Kong, and Singapore in 2017.