Posted by on August 2, 2017 11:55 pm
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Categories: 666 Fifth Anbang Insurance Group Australia Banking Regulatory Commission Banks Business China Chinese government Citigroup Communist Party Corporate Leverage Economy Economy of New York City Hong Kong Midtown Manhattan Morgan Stanley new york city Real estate Shadow Banking Subprime mortgage crisis

The Chinese government’s latest crackdown on capital outflows and corporate leverage is intensifying, and that’s bad news for Manhattan’s property market.

According to a report by Morgan Stanley cited by Bloomberg, new restrictions being imposed on the most acquisitive Chinese companies will likely lead to an 84% drop in Chinese overseas property investment this year, and a further 18 percent drop in 2018.

The markets most vulnerable to this slowdown, according to MS, are the US, UK, Hong Kong and Australia, with commercial properties the most vulnerable.

Manhattan commercial real-estate prices could fall sharply.

“Manhattan is a particular worry, with about 30 percent of transactions in the borough that’s home to Wall Street involving Chinese parties in 2017. In Australia, China is the largest foreign real estate investor, accounting for as much as 25 percent of office property transactions in the last two to three years, according to Morgan Stanley.”

As we reported on Tuesday, the Chinese government is pushing Chinse insurance company Anbang – the company that was in talks with Jared Kushner to buy his company’s stake in 666 Fifth Ave. –  to liquidate most of its overseas holdings and repatriate the proceeds of the sale. The company, whose chairman was detained by Chinese authorities in June, responded by saying it has no plans to comply…but we think the Communist Party will find a way to convince the company’s executives that deleveraging is in their best interest.

Chinese authorities appear to be trying to reverse the global M&A binge that helped aggravate capital outflows, leading to a massive drawdown of the country’s foreign-exchange reserves.

Back in June, China’s Banking Regulatory Commission dealt an embarrassing blow to Anbang and three of the country’s other top conglomerates by demanding that banks examine “systemic risks” posed by Anbang, HNA, Dalian Wanda and Fosun International before lending to them. The announcement triggered a sharp drop in the share prices of companies controlled by these conglomerates.

Since 2015, the four companies completed a combined $55 billion in overseas acquisitions, 18% of Chinese companies’ total.

Anbang also got caught up in a crackdown on “improper innovation” in the securities markets after it helped finance its expansion with sales of lucrative wealth-management products that offered among the highest yields compared with peers, a key spoke of China’s $9 trillion shadow banking universe. The move forced regulators to implement restrictions on high-yield, short-term investments.

Weakening demand from Chinese individuals and corporations represents another headwind for real-estate markets in the most expensive US cities, which are facing a boom of new supply in the coming quarters. Commercial real-estate sales in New York fell to a six-year low during the first quarter in anticipation, as we’ve previously reported.

Residential real-estate markets are already feeling the pinch of the Communist Party’s efforts to suppress foreign real-estate deals with new capital controls. Already, New York City is seeing fewer apartments sell for above the listing price, a sign that demand in one of the world’s hottest residential markets is cooling. In a nightmare scenario for New York real-estate developers: Demand is ebbing just as an influx of new supply is hitting the market. You can probably guess what kind of impact that will have on prices.

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