The slowing Chinese economy and its impact on U.S. real estate

On Behalf of | Sep 2, 2015 | Firm News |

California residents may have seen the August 2015 reports about how a slowdown in the Chinese economy sent ripples throughout the financial world. The Chinese government devalued the yuan after the Shanghai Composite began to plummet, and many observers feared that more bearish attitudes could lead to reduced Chinese investment in American real estate. However, some financial experts believe that Chinese economic difficulties will have little effect because major commercial real estate projects in the United States are not particularly reliant on Chinese investments.

Much of the fear over dwindling Chinese investment levels stems from the publicity surrounding major purchases of New York City real estate. Chinese investors today are receiving the type of attention that their Japanese counterparts attracted in the 1980s, and this has led many to believe that the Chinese are bigger players in the American real estate market than they actually are. According to the data collection and analysis company Real Capital Analytics, Chinese investors pumped almost $6 billion into major commercial real estate projects in the United States between September 2014 and August 2015, but this was far less than the $19.7 billion invested by Europeans or the $13.2 billion spent by Canadians.

Many media outlets compared the purchase of the Waldorf Astoria Hotel by a Chinese investment group in 2014 with Mitsubishi buying the Rockefeller Center in the 1980s. Mitsubishi walked away from that deal after the Japanese economy stalled, but analysts feel that Chinese investors will react to financial setbacks differently. They point out that many Chinese portfolios lack diversity, and they believe that foreign real estate speculation becomes more attractive to Chinese investors during uncertain economic times.

The profits associated with commercial real estate projects can be significant, but high rewards often entail taking high risks. Real estate attorneys could call upon their experience to point out possible sources of conflict or difficulty to entrepreneurs who may sometimes be focused too narrowly on the potential benefits of a project. Attorneys may also provide assistance with the documentation, zoning and regulatory issues that can stall a real estate project.

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