The potential of a trade war between the U.S. and China combined with increased regulation has caused Chinese outbound investment into real estate to drop, according to data from Cushman & Wakefield.

Investment from mainland China (excluding Hong Kong) into global real estate in the first quarter fell 27% compared to the same period last year to $5.6B, Cushman said. That is the lowest Q1 figure since 2015 and comes after a record $42B came out of China in 2017.

Given that new regulations imposing greater scrutiny on real estate deals kicked in on 1 March, Cushman said slow investment volumes would likely continue for the rest of the year. It added that in the medium term restrictions would be lifted again.

The U.S. has seen a particularly sharp decline, with just $242M deployed from China in the first quarter, which is a fraction of the $1.7B quarterly average for the past five years.

Cushman said the prospect of a trade war between the U.S. and China would likely mean that volumes stayed low for the foreseeable future.

“With intensifying rhetoric from both the U.S. and China regarding their trading relationship, this may curb the enthusiasm of Chinese investors for state-side properties for the remainder of 2018,” it said.

The U.S. was the fifth most popular destination for Chinese outbound capital. Hong Kong was top, followed by Australia, Singapore and the U.K.

Cushman said with investment to the U.S. dropping, countries like Australia and the U.K. would likely benefit.

In terms of the sectors where mainland Chinese investors were still active, development deals and large platform deals were still on these firms’ radars, according to the report.

Increased regulation might cause Chinese investors to be bigger sellers over the next year.