There are signs that Chinese investors have begun significantly curtailing their exposure to U.S. real estate, partially in response to fraying relations between the two nations.
According to data from Real Capital Analytics reported by the Wall Street Journal in a Jan. 29 story, net purchases of U.S. commercial real estate by Chinese firms declined to the lowest level seen since 2012. This follows several years of big spending in the U.S. on behalf of Chinese banks, insurers and state-owned corporations. In 2016 alone, net sales of commercial real estate to Chinese entities exceeded $19 billion. In 2018, that figure was just $2.7 billion.
Between 2013 and 2016, Chinese firms ramped up capital outflows to invest in more stable, lucrative markets, with American real estate among the most prized asset types. But the Chinese government has intervened to reduce foreign investment in an effort to stabilize its own currency and stave off a possible recession. The recent chill in diplomatic and economic relations between China and the U.S. has only emboldened China to clamp down further.
While real estate developers and property owners in the U.S. may miss the once-reliable capital infusions provided by Chinese clients, that doesn’t necessarily mean losing them will lead to a broad downturn in the commercial market. While China fell from first to fourth in the rankings of top foreign buyers of U.S. real estate between 2016 and 2018, investors from other countries like Canada, France and Singapore have only increased purchasing activity. In 2018, Canadian firms scooped up an impressive $44 billion of U.S. commercial real estate assets.
In other news:
- Fresh off a hot streak of brokerage acquisitions, new hires and a growing national footprint, Compass CEO Robert Reffkin said his firm may ease off the accelerator in 2019. In an interview with Brad Inman, Reffkin said Compass didn’t plan to expand into any new markets this year, and would instead look to bolster managerial and support staff in its current locations. In 2018, Compass grew at breakneck speed: It expanded into 85 new markets, raised an additional $1.2 billion in venture funding and hired nearly 6,000 new agents. Reffkin said the company is still committed to his previously stated goal: capturing 20 percent of the residential market in the top 20 U.S. metros by 2020.
- On the heels of the Federal Reserve’s latest meeting, mortgage rates ticked up slightly but appeared poised for a much more stable trajectory than economists previously anticipated. Average 30-year fixed rates ticked up just one basis point (0.01 percent) from the previous week, to 4.46 percent, according to Freddie Mac. After weeks of moderating, that makes home loans about as affordable to new buyers as they were a year ago, easing fears of rate-induced pressure on home sales. Freddie’s chief economist Sam Khater said this should put the housing market on a strong footing for the spring season, combined with growing inventory and price moderation.
- Federal financial regulators are stepping up scrutiny of certain mortgage lenders, particularly those that specialize in government-backed home loan programs offered through the FHA and VA. The Wall Street Journal reported that the Government National Mortgage Association, or Ginnie Mae, had recently taken a more active role in overseeing nonbank mortgage lenders, which have grown in recent years to encompass a much larger share of the market than before. Particularly in the FHA and VA loan market, nonbank firms vastly outnumber traditional banks, which curtailed lending in this segment following the 2008 crisis. But Ginnie Mae, which securitizes mortgages underwritten for FHA and VA borrowers, is nervous that nonbank lenders making those loans pose greater risks. Nonbank lenders are subject to fewer capital controls than traditional banks, although they tend to fill market niches that would be unprofitable for banks. The Wall Street Journal reported that Ginnie Mae’s increased scrutiny of its $2 trillion nonbank-originated portfolio comes as lower home sales and slower price growth raise the risk of mortgage default.