Will China’s Currency Move Slow US Real Estate Deals?

RMB (Photo by Eric Pesik, Creative Commons license)

RMB (Photo by Eric Pesik, Creative Commons license)

The State Administration of Foreign Exchange (SAFE) in China amended the policies regarding Chinese citizens converting the country’s RMB into foreign currencies. The amendment, announced on Dec. 31 and effective on Jan. 1, set a series of restrictions on the outflow of the Chinese currency, and caught many Chinese who plan to purchase properties in the U.S. off guard. Realtors in the U.S. also worry that it will affect the real estate market here.

The amendment requires Chinese citizens who convert Chinese RMB into foreign currencies to report to the bank in detail the planned use of the money and when it will be spent. It also bans using the money for purchasing properties or investing in securities in foreign countries. Many realtors in the U.S. think the new policy will make it harder for Chinese to buy properties in the U.S. But some say it will be fine because investors can always find ways to funnel the money out.

“I planned to ask my parents in China to send me $200,000 for my down payment. Now the plan has been halted,” said Scarlett Wang who was about to purchase a house in Boston. She made the plan with her parents in October to have her parents send money to her from China. “All my friends were helped by their parents in China when they purchased their apartments,” said Wang. “Now the new policy cuts off their channel. I have to forgo my plan to buy a property.”

Wang said that before the amendment, each Chinese citizen could remit up to $50,000 every year without specifying the purpose. It was much easier to send money out from China. “The RMB has devaluated a lot. So the costs of purchasing properties in the U.S. have already gone up. Now there are the new restrictions. I have to wait to see whether things will get better in the future,” Wang said.

According to the SAFE announcement, Chinese citizens can still remit up to $50,000 to foreign countries. But the possible purposes allowed now fall into nine categories including family visits, traveling, studying, medical care, and doing business overseas. Purchasing properties or securities are explicitly banned. In addition, the amendment also requires currency converters to report the tentative date when the money will be used.

Violators will not be allowed to remit money to foreign countries for two years, and also face a fine of up to 30 percent of the amount of unreported funds or up to 50,000 RMB (approximately US$7,222). Media in China said SAFE has been trying to curb Chinese citizens from purchasing properties overseas. The amendment only makes the rules stricter and more specific, and makes it harder to funnel money out.

The news has been a hot topic among developers in the U.S. John Lam, chairman of Lam Group, a major developer in New York, said the new policy will affect the plans of manyChinese for purchasing assets in the U.S. And Chinese buyers play a substantial role in the American real estate market. So the market here will be affected more or less. But it won’t be too bad, he says.

Lam said the restrictions place no limits on people who plan to invest in the EB-5 immigrant investor program or those who plan to come here to open a company or a plant. Many Chinese real estate buyers are people who come to the U.S. to do business first and then purchase properties with the money they make here. However, Lam pointed out the EB-5 program will raise the threshold for the investment in April. So the costs for a green card via the program will increase, making similar programs in European countries more appealing to the Chinese.

Eric Benaim, president of Modern Spaces, a real estate company in New York, said he is not worried about the amendment. He said the company serves more than 100 Chinese clients every year, and investors from China make up 40 percent of their entire clientele. The Chinese clients prefer to buy in Flushing and Long Island City. Many of them pay in cash all at once. Some pay a 50 percent down payment in cash first and then take out a mortgage.

“Chinese people are very smart. They’ll find a way to do it,” said Benaim. He added that the new policy might affect some Chinese investors who plan to buy properties in the U.S. But it’s possible that the policy will change again in the future. And investors are always able to find ways to bring money to the U.S. legally in order to purchase properties.

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