China Imposes New Restrictions on Money Going Offshore…And Have the Chinese Given Up NYC Real Estate?

On January 2nd, 2017, a set of new policy measures aimed at further tightening China’s currency control is announced.  It sends shockwaves around the country.  Two weeks after the announcement, I hit the road to get a first-hand understanding of what this means to the Chinese investors.  On a sunny winter afternoon In Xin Tian Di, a hip hangout place in Shanghai, a group of clients and I sit down over tea and cakes to discuss wide-ranging topics.

Despite popular speculations towards the end of 2016 that the government would lower the long-standing quota of 50,000 USD each Chinese citizen can exchange from RMB per year, the new policies leave the quota untouched.  Instead, Chinese citizens are now required to clarify the purpose of the money they wire abroad.  The guidelines specifically state that individual citizens may not wire money overseas to invest in real estate or other investment products.  This, without a doubt, will dampen the spirited pursuit of overseas real estate, but my own experience so far and many others’ indicate that the new policies will not stop the game either.  Most online platforms focused on foreign real estate in China have not seen a meaningful decline in their traffic since the announcement.  Neither has the number of inquiries I receive declined.  Looking across the room, I notice that almost everyone there either has a child or plans to send a child to the US to study.  In addition, half of the room either work for a foreign company or have a residence outside of China already.  These existing overseas connections are what is driving their real estate investment in the US.  In their eyes, they need to buy an apartment for their children and they use their connections to move their money out.

My clients joke about living in a house together in their old ages, with their only child all so far away.  Concerns over the environment, education and politics push these upper middle class parents to make the hard decision of sending a child away.  The US, despite all of our problems, still ranks as the number one destination with its stable political and economic systems.

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