Chinese capital outflows take dive
PROPERTY investment by Chinese companies plunged in January as authorities tightened restrictions on capital outflows to support the ailing yuan currency and ease pressure on the country’s foreign exchange reserves.
Investment by Chinese firms in offshore properties – which has helped fuel sharp and often contentious home price rises from London to Vancouver – tumbled 84.3 percent in January from a year earlier, the Commerce Ministry said yesterday, without giving the amount invested.
That helped drag China’s overall direct investment (ODI) down 35.7 percent in January to 53.27 billion yuan (R101.11bn), the weakest in 16 months. The data does not include investments by companies in the financial sector. China tightened its grip on moving funds out of the country late last year as the yuan plumbed to more than eight-year lows.
While Beijing says it supports legitimate overseas investment, regulators have warned that they would pay close attention to “irrational” investment in property, entertainment, sports and other sectors.
The move has disrupted Chinese plans to buy global assets ranging from Italian soccer club AC Milan to a Hollywood studio. Those involved in helping Chinese invest overseas say it is now much tougher to get money out of the country.
“All outbound property deals are heavily affected by the capital restrictions. We have changed our funding channels to target investors who already have funds offshore,” said an investment manager at China Orient Summit Capital, which operates property investment funds in Shanghai.
DTZ/Cushman & Wakefield expects the deal volume of China’s outbound property investment to drop slightly in 2017 under the clampdown. It estimates Chinese investment in overseas commercial real estate alone reached a record $38.3bn (R499.4bn) last year. There are also signs that overseas property purchases by individual Chinese, which aren’t included in ODI data, have also been impacted by capital controls.
“There has been a perceptible reduction in activity from Chinese buyers on the ground in (London’s) Mayfair, but they have by no means disappeared,” Tim Macpherson, head of London Residential at Carter Jonas, said ahead of yesterday’s data.
In Vancouver, Canada’s most expensive real estate market and a region popular with Chinese buyers, property sales plunged 39.5 percent in January from a year earlier, data from the Real Estate Board of Greater Vancouver showed.
Measures recently announced by Beijing include vetting transfers abroad of $5 million or more and increasing scrutiny on outbound corporate investments.
Chinese banks on January 1 also began requiring customers purchasing foreign currency to specify how they will use the funds, while reminding them that individuals are not allowed to invest in overseas property under the capital account.
Efforts to prop up the yuan currency led China’s foreign exchange reserves to fall below the $3 trillion level in January for the first time in nearly six years. – Reuters