The Chinese government plans to ease restrictions on its citizens’ ability to invest overseas, potentially bringing a flood of new capital into the Bay Area real estate market.
Real estate is already a popular investment among affluent Chinese and San Francisco already attracts more Chinese real estate capital than any other city in the U.S., including New York, according to Ethan Pang, a buyer specialist with Deleon Realty in Palo Alto.[contextly_sidebar id=”KQUsCvYXLkDL2DVQwagqPE6WpCMDzxjB”]But the Chinese individual investors who are currently investing here are navigating restrictions. They are limited to converting renminbi into no more than $50,000 a year.
“Everyone who wants to buy a home here, they have to get multiple people to convert currency,” Pang said. “You have to get all your family members to invest here. This program is the first program that is trying to remove all the restrictions for individuals.”
Though not for all individuals.
The Qualified Domestic Individual Investor program will initially be limited to residents of the Shanghai Free Trade Zone and will then be rolled out to the rest of Shanghai and to the cities of Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou, attorneys Will McCosker and Stanley Zhou with the law firm King & Wood Mallesons wrote in an article last month. The program will also be limited to Chinese with at least 1 million yuan (about $160,000) in financial assets. The Chinese government is expected to launch to program by the end of this year.
Along with real estate, participants in in the program will be allowed to invest in foreign stocks, bonds, funds, insurance products, foreign exchange and derivative products, and joint venture and greenfield projects.
Theoretically, once the program is fully implemented, it will free up $6.61 trillion in Chinese individual investors’ capital to be put to work overseas, Pang said at a conference in Burlingame on Nov. 21, hosted by the University of San Francisco School of Management’s China Business Studies Initiative.
Recent patterns of Chinese investment suggest that a lot of that capital could flow here. The U.S. is already the largest overseas real estate market for Chinese investors, Pang said, with 34% of that capital invested in the San Francisco area, compared with 22% for New York. Much of that investment has been by state-owned Chinese companies, who have been encouraged to invest in Silicon Valley.
“Right now, you’re seeing a lot of investments in the Valley,” Pang said. “The past two years, the government was really pushing state-owned companies to buy hard assets in the Valley.”
Recent deals by Chinese investors include Beijing-based Oceanwide Holdings Co. Ltd.’s agreement earlier this year to purchase a site at Mission and First streets in San Francisco for almost $300 million. The tower that is planned for the site could be the city’s second tallest building. Oceanwide plans to spend as much as $1.6 billion on the development, according to press reports.
Also earlier this year, a joint venture of private equity firm H&Q Asia Pacific and Kylli Inc. acquired Burlingame Point, an 18-acre waterfront property at 300 Airport Blvd. in Burlingame. Kylii is backed by Chinese developer Genzon Property Group. Genzon and H&Q plan to spend $300 million to develop Class A office space at the site, catering to international technology companies.