Do I Really Have to Disclose the Purpose of My Foreign Investments?

Upper west side sidewalk with luxury residential building facades and stairs.

Since January, the Chinese government started to require that Chinese citizens must disclose the purpose of their foreign investment to them in order to cut back on overseas transfers at $50,000.  In so doing, this act will curb the flow of money pouring out of China. Now, the effects have reached the real estate division, where, before the clamp, Chinese citizens could plunk down 1 or 2 million in cash to buy a luxury apartment in New York City with little or no restriction. That’s no longer the case, but it underscores how tyrannical the government can be.

As a result, Chinese millionaires and real estate moguls are in a flurry of confusion, wondering how much exactly they can borrow from their savings that is rightfully theirs but is now in a kind of limbo.

Asian Businessman in New York City

The recent withholding on money leaving China directly effects the state of US realty across the country.  Everything is stricter, and caught in red tape, not unlike a person buying a co-op in New York City who has to submit a very long dossier that includes just about everything about his life, including the despised financial statements he must show in order to reveal that he’s capable of making his mortgage payments each month and will be an outstanding citizen of the building.

The curious thing is, now that the brakes are on hold, local banks are seeing an enormous amount of Chinese buyers who want to invest in New York real estate, not the opposite.  But the fact that their funds are stuck in mainland China is a major problem for these citizens.

But since the January regulations, local banks are seeing a wave of interest from buyers who want to invest in New York real estate, but whose funds seem frozen. And since it looks like there will be no end in sight to this curtailing, the Chinese investment market in New York City has helped individuals and groups. Rather than the all-cash purchases of before, this market has gone more mainstream by using traditional financing on its clients.

According to the National Association of Realtors, in the past, and between April 2015 and March 2016, Chinese citizens paid all cash in 71% of US real estate deals, compared to just 20% who obtained mortgages from a US lender. There is, though, lenders in effect, as smaller banks—not large ones, who already have so much market share—have allowed Chinese buyers to securely borrow money from them.

Now that it’s more difficult to move money, those who do have cash and pay in cash seem to be exempt. Still, to many US financiers, the Chinese buyer is still someone who’s at risk. To buy a home, banks require buyers to open an account holding at least six months’ worth of mortgage payments. We’ve seen this before; the landlord asking for first and last month’s rent. What we haven’t seen before is how much the buyer needs just to buy an apartment.

Because of this, the all-cash offer is off the table, and the Chinese who would like to buy an apartment in New York must now buy using the traditional mortgage route.

Since the hurtle, the Chinese have not yet stabilized their buying. And through it all, and while it may be a surprise to no one, demand for real estate investments in New York City haven’t slowed down and probably won’t for a very long time.

Read the original article on Business Insider. Copyright 2017.

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