Chinese home buyers last year ponied up much less cash in the U.S. as the trade war continues to escalate between the world’s two largest economies.
As top leaders of the two countries prepare to meet this week, there are worries that decline in spending could extend further.
U.S. property sales to Chinese buyers saw a 4% drop from 2017 to 2018, according to numbers provided by Juwai.com, China’s largest foreign property sales site.
“The worsening trade relationship between China and the US may cause Chinese investors to shift their presence into other key markets,” property consultancy Knight Frank said in a report. It suggested that investment can instead go to major cities in Australia, Japan, and the United Kingdom, according to the firm’s 2019 Wealth Report.
All foreign spending on U.S. homes fell by 25% in 2018, according Juwai.com.
U.S. homes have long been a favorite among Chinese foreign property buyers. But that’s increasingly less of a sure thing amid the escalating trade tensions and China’s tighter controls on money leaving the country.
Trade war and travel warnings
As the trade war between Washington and Beijing has been dragging on for just over a year, “Chinese buyer enquiries for US property were down in four out of the five last quarters,” said Juwai.com CEO Carrie Law.
“In the first quarter (of 2019), Chinese buyer enquiries on U.S. property were down 27.5% from a year earlier,” she said. “Meanwhile, they were up in Canada, the UK, Australia, and Japan, all of which are often considered alternative destinations to the United States.”
But the trade war isn’t the only factor driving the decline. Official warnings about U.S.-China travel are likely also pressuring spending.
“Travel warnings are part of an overall environment of negativity between the two countries that is discouraging Chinese property buyers from investing in the U.S.” Law said.
In January 2019, the U.S. Department of State issued a travel warning on China, suggesting citizens visiting China to “exercise increased caution in China due to arbitrary enforcement of local laws as well as special restrictions on dual U.S.-Chinese nationals.” China then respond by issuing a safety warning in June for Chinese citizens and companies in the U.S. to “raise awareness, strengthen preventative measures and respond properly” when traveling and doing business in the United States.
It’s all part of a pattern that’s making the United States less of an appealing destination for Chinese investment.
Some experts said the decline in Chinese property purchases in the U.S. can also be attributed to internal pressure in China.
Neil Brookes, Asia Pacific head of capital partners at Knight Frank told CNBC last week that Chinese outbound capital fell 83% in 12 months, “largely due to trade wars and the government trying to stop money leaving the country.”
In the past two years China has been tightening its grip on capital outflows, which “has cast a shadow over outbound investment,” according to a report by Knight Frank.
Despite the declines in property expenditure, Chinese tourist spending has actually increased in the U.S.
According to the U.S. National Travel and Tourism Office, there was a decline in visitors from China in 2018, from 3.2 million to 2.9 million. Those who did visit the country, however, spent more than ever before.
In fact, international visitors from China spent $36.4 billion in the United States in 2018, an increase of 3% when compared to the previous record set in 2017.
The health of the U.S.-China tourist trade may point to a significant cushion for Chinese investment into the United States. And, looking ahead, Law said she expects purchasing American homes will remain attractive to many Chinese.
“Chinese will always be substantial buyers of US property and even now are probably still the largest foreign buyer group in the country,” she said.
“The thing that makes buyers most nervous is uncertainty,” Law added. “If the trade war simply becomes the new normal, or if it is resolved on good terms, you will likely see an increase in Chinese buying in the US.”