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New Chinese Forex Restrictions Impact Likely To Be Minimal

China’s new rules for foreign currency transactions that attempt to control conversion of yuan into foreign currencies for buying property overseas might not have the desired impact as per experts.

From January 1 onwards, Chinese citizens are not allowed to use foreign currency purchases for property transactions or for investment purposes. While the purchase limit of $50,000 in foreign currency per year for individuals has been retained, an application detailing purpose of the purchase, among other information is now required. Penalties for violating these rules have been also toughened.

Experts however believe that investors are likely to find alternate ways to transfer money out for property purchases. Tim Clissold, a veteran China investor agreed pointing out that as circumventing rules was easy, transactions below $10 million might not be affected. Investors have so far been bypassing regulations with tactics such as pooling fund quotas from families and friends or transferring money using underground banks.

Mainland Chinese are today among the largest buyers of property globally. They overtook Canadians as the top purchasers of property in the United States in 2015, spending around $28.5 billion. They are similarly active in markets like Hong Kong, Japan and Australia

In a statement Thomas Lam, senior director at property consultancy Knight Frank said

The new policy may hit some middle-class Chinese who have just started to consider overseas asset allocation. But for high net-worth individuals, I don’t see any impact, as most of them already have offshore bank accounts and investments

According to Lam, a large portion of sales in the super luxury homes segment in Hong Kong are bought by the Chinese, and this trend is unlikely to get affected. Sam Van Horebeek, a director at East-West Property Advisors which acts as a bridge between Chinese buyers with U.S. realtor’s said that Chinese investors are becoming worried about the weakening yuan as well as the looming economic slowdown and are therefore keen to diversify.

Property remains the top investment avenue for China nationals. Eastwestproperty.com is reported to have seen enquiries worth an average of US$870,000 in the past 18 months. Van Horebeek added that some U.S banks are extending loans to mainland Chinese investors. James Shepherd, managing director of research for Greater China DTZ/Cushman & Wakefield confirmed this, saying that though there has been some slowdown, interest levels from Chinese investors for overseas properties remains high. Less-lucrative South Asian markets like Malaysia and Thailand may however witness a drop. These markets have in recent times attracted the attention of less wealthy Chinese buyers.

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