Beijing’s currency curbs could cool frosty housing market
Joanne Lee-Young
The Vancouver Sun
Beijing’s tight new currency rules designed to make it more difficult for overseas property purchases have Metro Vancouver real estate wondering if the effect will be a further slowdown of the local housing market.
The new edict demands a written pledge that yuan converted into U.S. dollars will not be used to buy property overseas. It also creates a government black list and harsher penalties for violators.
The new rules came into effect on Jan. 1, causing uncertainty in global real estate markets from London to San Francisco and, of course, Vancouver.
Some have been doing back-of-the-napkin calculations to guess at what a sharper chokehold on Chinese funds could mean for a market already reeling from the additional property tax for foreign buyers.
Others wonder how this latest move might compare with past attempts to cool the outflow of Chinese money.
“I think this round of (foreign-exchange) crackdown is much more strictly enforced and (will be) longer lasting,” said Victor Shih, associate professor at the University of California, San Diego, who is researching the impact of elite networks in China. “Prior to the end of last year, even low-level private bank clients for major Chinese and transnational banks can easily transfer money from mainland accounts to offshore (ones.)
Chinese authorities have now stopped this, he said.
“In addition, when exchanging any amount of money in China, one now needs to specify the beneficiaries of the exchanged foreign currency, whether it be an overseas university, a tour group or a hotel,” Shih said.
China’s foreign-exchange reserve has been rapidly emptying since 2015, he added.
“Because money supply in China today is over US$20 trillion, even if a fraction of the money of the money supply were to get out, it can quickly wipe out China’s reserves. Thus, (Beijing) has to impose increasingly draconian restrictions on capital flows.”
In Metro Vancouver, agents say there are signs it is now harder for some property buyers to cobble together dollars for use outside China.
But most are still optimistic that just as there have been ways to skirt Beijing’s official limit of converting yuan to US$50,000 per person, per year, there will be new ways around the new rules.
While first-time buyers might be more handicapped or wary of breaking the new rules, others — such as those already residing overseas or who are immigrants — will be more able to tap wealth that has already been transferred out of China.
Realtors vetting a serious buyer with money from China had already long been used to asking if funds for down payments and mortgage ones have been moved to an overseas account such as one in Hong Kong or Canada.
“I know people who can’t get their money out, and, in the end, they borrowed from friends” and family who are here and will pay them back in China, said one realtor, who declined to be named.
Even though the measures by Beijing aim to stem the flow of so-called hot money (that is, large amounts of cash that are transferred quickly for sharp gains or to hedge against a slide), those more likely to be thwarted are middle-class families hoping to buy property and immigrate from China to Canada.
“Those will be the ones affected. They will have more issues getting their money out compared to higher-end Chinese buyers who have businesses here” or elsewhere, that can be used to help consolidate funds in U.S. or Canadian dollars, said Godfrey Chan, a realtor at Re/Max Metro Realty.
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