This Expert Doesn’t Expect China to Return to US CRE Anytime Soon

Chinese investment in US commercial real estate has plunged in the last two years due in part to capital outflow restrictions and in part to geopolitical tensions between the two countries. 

Don’t expect that to change anytime soon even if there is a reset in relations between China and the US as China’s “One Belt, One Road” initiative draws more and more of the country’s economic resources. 

The initiative, which was announced in 2013, will invest in nearly 70 countries and international organizations to recreate the old Silk Road trading route. The infrastructure to produce the route is costly.

“It’s a system of railways, bridges, roads and shipping lanes,” says Alex Foshay, Newmark vice chairman, divisional head of International Capital Markets. “They have been pouring billions and billions of dollars of investment into it.”

As investment in “One Belt, One Road” has intensified, expenditures in the US have tapered off, according to Foshay, who notes that since 2016 when capital controls were introduced “mainland Chinese institutions are restricted from investing overseas unless the investment is approved by the Chinese government,” Foshay says.

These restrictions predate the Trump presidency, though that administration’s stance toward China didn’t help things. “Obviously, the trade tensions during the Trump administration exacerbated the matter,” Foshay says.

Even under a Biden presidency, Foshay doesn’t see a dramatic change in Chinese investment. “The policies coming out of the Chinese government are opaque by nature,” he says. “We are in constant dialogue with major mainland Chinese institutions, such as Ping An, China Life and all of those. And, they don’t foresee the status quo of capital controls changing anytime soon.”

Overall, Foshay could see the new administration having a positive effect on international investment into the US.

“I think that the Biden administration is going to be viewed as taking a more engaged approach with countries around the world and in both politics and economics,” Foshay says. “In that sense, there will be warmer and friendlier feelings towards investment in the US.”

Still, Foshay points out that there was robust international demand for US commercial real estate during the Trump administration. So even if the tone was off, money was still flowing in.

“International demand for US commercial real estate has remained very strong through the Trump administration,” Foshay says.

During the end of Trump’s term, factors such as hedging costs falling dramatically and COVID making US real estate value look more attractive helped spur investment.

“We saw a marked increase in overseas investment, even in the last 10 to 12 months of the Trump administration, from overseas,” Foshay says. “That being said, there is a hope that with trade barriers erected by the Trump administration hopefully being gradually dismantled under a Biden administration, there will be a friendly tax landscape for overseas investors. Hopefully, there will be a more simplified tax code for overseas investors seeking to make real asset investments in the US.”