Posted by on May 21, 2017 1:10 am
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The stringent capital controls adopted by Chinese authorities on Jan. 1, some of which were specifically designed to curb foreign real-estate purchases, appear to have had their desired effect. To wit: First-quarter property sales plummeted 58% to $4.3 billion, compared with a year earlier, Bloomberg reported, citing data from real-estate brokerage Cushman & Wakefield Inc.

And nationwide, the picture wasn’t much better: Sales dropped 18 percent, research firm Real Capital Analytics Inc. found.

Here’s a rundown of the new capital controls, as reported by Bloomberg:

  • Customers must pledge money won’t be used for overseas purchases of property, securities, life insurance or investment-type insurance. While such rules aren’t new, citizens previously didn’t have to sign such a pledge
  • Customers must give a more detailed account of the planned use of funds, such as business travel, overseas study, family visits, medical treatment, merchandise trade or purchases of non-investment insurance policies, including the timing, by year and month
  • Violators of foreign-exchange rules will be be added to the currency regulator’s watch list, denied foreign-exchange quota for three years and subjected to anti-money-laundering investigations
  • Customers must confirm compliance with restrictions on money laundering, tax evasion and underground bank dealings
  • Customers must now confirm they aren’t lending or borrowing quotas to or from other citizens

But the capital controls were just the spark: For months we’ve been warning that real estate markets in NYC and San Francisco, among others, are getting ready to rollover as the market is squeezed by already-high valuations and a flood of new luxury apartments (see here and here).

As we reported back in December: With a substantial amount of capacity expected to come online over the next several quarters and a growth cycle that is entering its 8th year, one Chinese real estate investor admits “you get a sense now that it’s peaking.”

Of course, the mainstream media would be remiss if it didn’t find some way to blame it all on Trump:

As Bloomberg reports:

Much of the slowdown has nothing to do with Trump. Concern is mounting that real estate prices have peaked following six years of record-shattering growth, and there are signs of overbuilding in large cities such as New York and San Francisco—the biggest beneficiaries of the recent boom.

Some of this hesitancy, however, can be traced to Trump’s gilded door. Real estate investors worry that Trump’s industry-friendly tax cuts will fail to pass. At the same time, others figure that lower taxes and higher spending could spark inflation and rising interest rates—a liability in the debt-driven business.

In fact, “uncertainty about the fate of Trump’s entire economic agenda is holding up deals across the country. Buyers and sellers “need to have shared expectations” before signing on the dotted line, said Jeff Friedman, a principal at Mesa West Capital, a Los Angeles-based real estate investment firm,” Bloomberg reported.

If investors are worried about rising interest rates, they should stop paying attention to the Federal Reserve’s dubious projections. Remember, Trump wants to keep interest rates low; the dot are just a distraction.

But that doesn’t change the fact that the New York market is sagging as developers struggle with a glut of hotels, condos and apartment complexes following a multiyear construction boom. Now, landlords are slashing rents, and lenders are tightening loand requirements.

Bloomberg uses Louis Ceruzzi, a developer who, like Trump, got his start outside Manhattan, as an example of how major projects have ground to a halt in the city. Two years ago, Ceruzzi and a Chinese partner bought a plot at 520 5th Avenue, paying $275 million – doubled the price paid for it in 2011. In late 2015, Ceruzzi told the Commerial Observer that construction would begin the following Spring.

But more than a year later, theere’s only “an empty lot, an idle backhoe and scattered piles of rubble,” Bloomberg notes.

Ceruzzi, for his part, didn’t respond for comment. A picture of his land can be seen below.

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