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Chinese Investment Pullback To Continue, Drive Down Prices In 2019

President of China Xi Jinping

The Chinese government continues to restrict investment in the U.S. and European real estate markets, which look likely to show some strain this year.

New studies from Green Street Advisors and Real Capital Analytics predict that Chinese investors will continue to sell quite a bit more real estate than they buy overseas in 2019, the Wall Street Journal reports. That will likely contribute to a decline in average real estate prices nationally this year, according to Green Street and RCA.

Since Chinese investors exploded onto the international real estate scene in 2014, they have often set the top of the market in major cities with headline-grabbing deals like Anbang Insurance Group's $1.95B purchase of the Waldorf Astoria hotel in New York, the most ever paid for a U.S. hotel. Anbang now plans to sell a $5.5B hotel portfolio, though the Waldorf is not part of the offerings, the WSJ reports.

Chinese pullback will likely affect pricing beyond the raw transaction statistics, as the absence of such a high-roller could affect market psychology, according to RCA analysts. The departure of Chinese capital came as interest rates started rising significantly for the first time since before the Great Recession, a double whammy that has ensured commercial real estate's fall from its peak of a couple of years ago.

The Chinese government is likely to keep its restrictions in place due to negative predictions about the short-term future of the real estate market, but also to protect the value of its national currency, the WSJ reports. The yuan has been hit hard by China's trade dispute with the U.S., falling 5.7% against the dollar in 2018, according to the WSJ.

One area in which Chinese investment could persist is industrial real estate, both because its long-term prospects appear rosier than other sectors and because industrial properties fit into China's Belt and Road Initiative, which prioritizes international infrastructure investment, analysts told the WSJ.