As equity markets tumble, China’s government is making moves to stop the capital exodus, as wealthy investors seek safe havens for their money.

After easing restrictions on foreign investments in 2012—a move that helped kick-start the historic spending spree in US real estate—China's looking to ban yuan-based funds for overseas investment, sources tell the Wall Street Journal. That could pose a huge threat to US luxury real estate.

With huge developments relying on EB-5 money (90% Chinese), not to mention institutional capital, a capital ban could put a huge dent into the luxury market, if not force an outright market correction.

Bob Knakal, Cushman & Wakefield's chairman of New York Investment Sales, helped kick of the Chinese spending frenzy when he brokered a historic 2012 Brooklyn sale—the first time any foreigner outbid the Hasidic community in Brooklyn's Williamsburg section.

Despite the threat of a ban, foreign capital would keep on flowing, Bob says—even if Chinese money was cut off overnight. "I think it would be an impact, but it wouldn't be a disaster," Bob says.

At the moment, there are two major ways China’s government can target cash outflow, Georgia State University's director of economic forecasting Rajeev Dhawan tells Bisnow: limiting individual investments or focusing on big-ticket purchases by companies, like Angbang Insurance's $2B Waldorf Astoria buy in 2014.

The first option would mean a slowdown in coastal gateway cities, the primary target for Chinese investors after the 2012 floodgates opened.

But, if China goes after institutional investors buying up US assets, “this will be bad news for the pricing of industrial and office buildings,” Rajeev says.

Right now, Chinese firms need a sign-off from the government to close foreign deals, meaning the yuan-fueled acquisition train could derail if the Communist Party sees fit.

Still, Bob says that loosening of FIRPTA has paved the way for more foreign investment, and not just from China. Plus, lots of Chinese buyers keep their cash outside of China already, and they could use those funds freely.

"Capital markets are very efficient," Bob says. "I think there would be alternative sources of capital that come in to fill the niche."