Mainland investors dodge onerous curbs on capital flight
The growing Phnom Penh skyline backlit at sunrise. khlungcenter/Shutterstock
Chinese real estate investors are still finding loopholes to take advantage of the US dollar’s appreciation to the yuan, despite Beijing’s clampdown on capital outflows. Yet they don’t even need to go to the US to do that.
In nearby Cambodia, Chinese property investors are taking advantage of the liberal circulation of the greenback, commonly used in the kingdom to defray large purchases. “The airplane from China to Cambodia is still full of property buyers,” Jasper Shin, the sales and marketing manager at Phnom Penh’s TK Square, told RealEstate.com.kh.
“They come here to find a way to deliver money into overseas property. As their currency has devalued 1:7 in recent months, it makes sense that the Chinese consumers want to export their money to overseas investment targets, especially ones in US dollars such as Cambodia,” he explained.
Investors do this by funneling funds to the China-based “mother company” of the developer in Cambodia, Shin elaborated further. This way, the buyer still captures the overseas asset while the funds technically remain within the mainland.
“When this isn’t possible, Chinese investors in Cambodia can use financial companies to manage their capital transfers and dodge the domestic regulations. Yet this may be on the table or under the table, we don’t know for sure,” he said.
Overseas commercial real estate investments from China topped USD38.3 billion in 2016, the highest ever recorded by DTZ/Cushman & Wakefield. This outpouring of capital constituted an increase of 49 percent over 2015, according to the consultancy’s new report on Chinese outbound investment capital.
Meanwhile, Jones Lang LaSalle registered a 53 percent surge in outbound Chinese property investments, both commercial and residential, between 2015 and 2016 to USD33 billion.
The data flies in the face of Beijing’s mounting, onerous measures toward maintaining the country’s dwindling foreign reserves. Earlier this month, the State Administration of Foreign Exchange required foreign currency purchasers to affix their signatures on pledges that the money will not be used toward overseas purchases of property, securities, life insurance, or investment-type insurance.
Violators will lose foreign exchange rights for at least two years and possibly undergo anti-money laundering investigation.
Such regulations may do little to hold back the indomitable tide of Chinese home buyers in the US. “It is possible they will prove to have a more resilient interest in the US property market with motivating factors such as education and lifestyle being factored in rather than simply a demand for pure investment performance,” DTZ/Cushman & Wakefield stated in its report.
“It’s a fine balancing act,” said James Shepherd, DTZ/Cushman & Wakefield’s managing director for Greater China research, in a statement. “Though the government is carefully monitoring the exchange rate and seeking to have tight control over the capital outflows from China, it still appears that they are very much committed to allowing Chinese companies to go global and diversify their holdings.”