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Home / World / The trade war puts a strain on Chinese house purchase in the USA

The trade war puts a strain on Chinese house purchase in the USA



The skyline of downtown Los Angeles, California.

Frederic J. Brown | AFP | Getty Images

Chinese home buyers have made significantly less money in the US last year as the trade war between the world's two largest economies continues to escalate.

President Donald Trump and President Xi Jinping are preparing for the meeting this week with fears that the decline in spending may continue to fade.

US According to Juwai.com, China's largest property sales outlet, real estate sales to Chinese buyers decreased 4% from 201

7 to 2018.

"Deteriorating trade relations between China and the US may cause Chinese investors to shift their presence to other key markets," Knight Frank said in a report. According to the company's Wealth Report 2019, investments could instead be made in major cities in Australia, Japan and the UK.

Overall, US real estate was battling international investors: all foreign US home spending fell 25% in 2018 to Juwai.com.

US homes have long been a favorite among Chinese foreign real estate buyers. But this is less and less certain given China's escalating trade tensions and China's tighter monetary controls leaving the country.

Trade War and Travel Warnings

As the Trade War Continues between Washington and Beijing Just over a year later, "Chinese buyer requests for US real estate have dropped in four of the last five quarters," said Carrie Law, CEO of Juwai.com.

"In the first quarter (2019), Chinese buyers' requests for US real estate fell 27.5% from the previous year," she said. "In the meantime, they've been in Canada, Britain, Australia and Japan, which are often viewed as alternative destinations to the United States."

But the trade war is not the only factor that drives the decline. Official warnings about travel between the US and China are also likely to put pressure on spending.

"Travel warnings are part of a negative environment between the two countries that prevents Chinese homebuyers from investing in the US." Law said.

The US flag blows at a welcoming ceremony between Chinese President Xi Jinping and US President Donald Trump in 2017.

Getty Images News | Getty Images

In January 2019, the US State Department issued a travel warning to China, advising citizens who visited China, "in China, due to the arbitrary enforcement of local laws and special restrictions on US-Chinese nationals, greater caution As a result, China issued a security warning in June calling on Chinese citizens and businesses in the United States to raise awareness, enhance prevention, and respond appropriately while traveling and doing business in the United States.

All of this is part of a pattern that makes the United States less of an attractive destination for Chinese investment.

"We call it the Trump effect, it's a combination of anti-Chinese political rhetoric, visa restriction and, of course, tariffs," Law said.

"The Trump effect undercuts some of the main reasons for China's demand for US real estate," and it is affecting "the country's reputation as a safe investment," she added.

Capital Control

Some experts said the decline in Chinese demand for real estate purchases in the US can also be attributed to internal pressure in China.

Neil Brookes, head of Capital Partners at Knight Frank in the Asia-Pacific region, told CNBC last week that Chinese outbound capital has fallen by 83% in 12 months, "which is mainly due to trade wars and the government is trying to stop its abandonment. "

Over the past two years, China has exacerbated capital outflows, which" has left a shadow on foreign investment, "according to a report by Knight Frank.

The introduction of stricter controls has been fueled in part by Beijing's concerns about declining foreign exchange reserves that the Chinese government is using to maintain the yuan. The government has stated that resorting to capital that crosses borders is also part of an attempt to stem the transplant.

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Foreign home ownership has since been classified as a "sensitive sector" according to the Knight Frank Wealth Report 2019. In other words, investing in "overseas property markets requires stringent regulatory approval" and may attract unwanted attention.

Outlook

Despite the decline in real estate spending, spending on Chinese tourists in the US has actually increased

For the US Travel and Tourism Bureau, 2018 saw a drop in visitors from China to 3.2 million 2.9 million recorded. However, those who visited the country spent more than ever before.

In fact, international visitors from China spent $ 36.4 billion in the US in 2018, an increase of 3% from the previous record of 2017.

The health of US-Chinese tourism could be a significant cushion for indicate Chinese investment in the United States. And with a view to the future, Law assumes that the purchase of American homes remains attractive to many Chinese.

"Chinese will always be major buyers of US real estate and are likely to be the largest foreign buyer group in the country," she said.

"The most nervous thing about the buyers is the uncertainty," Law added. "If the trade war simply becomes the new normal, or if it is resolved on favorable terms, you will probably see an increase in Chinese purchasing numbers in the US Demand for US real estate remains enormous." It is still the most liquid and attractive market in the world. "

Investors will receive their next information on the future of the trade war when Trump and Xi meet at a G20 summit in Japan later this week. The US president has announced that he will soon reach a decision on possible new tariffs.

– Huileng Tan of CNBC contributed to this report.


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