Chinese investors buy more U.S. residential real estate than any other country, but Trump’s trade war could soon end that

The trade dispute between the U.S. and China reached a fever point in recent days, as Washington, D.C., and Beijing have gone tit for tat in imposing higher tariffs on imports.

Concerns that the two countries would not resolve the dispute sent the Dow Jones Industrial Average DJIA, +0.47%  and the S&P 500 SPX, +0.61%  reeling Monday, though the two indexes recovered as of mid-day trading Wednesday.

Chinese investors have been the biggest purchasers of U.S. residential real estate for six consecutive years, but President Trump’s trade war, and China’s efforts to reduce its national debt and boost economic growth could change that.

And if the impasse continues, the effects could be even more far-reaching. “The Chinese government could place stricter capital controls about taking money out of China and buying in America,” said Lawrence Yun, chief economist at the National Association of Realtors. China’s government has already put pressure on Chinese nationals to reduce their commercial real-estate investments.

Meanwhile, the U.S.-China trade dispute has sent the Chinese yuan USDCNH, +0.0087% to new lows relative to the U.S. dollar. “It’s already making U.S. real-estate more expensive” for Chinese buyers, said Michael Fratantoni, chief economist at the Mortgage Bankers Association.

The trade war also adds to U.S. economic uncertainty at a time when real-estate demand is weakening in some of the country’s hottest housing markets.

Also see: Trump’s trade war with China doesn’t bode well for an already shaky U.S. housing market

China has become the largest foreign buyer of U.S. residential real-estate

In 2014, China supplanted Canada as home to the largest share of foreign buyers of U.S. residential real estate, according to data from the National Association of Realtors.

In 2018 dollars, Chinese buyers accounted for roughly 25% of total foreign investment in U.S. residential real estate. Canada was No. 2 at 9%.

Of the 284,000 properties sold to foreign buyers last year, some 40,400, or 15%, were bought by Chinese nationals. Five years earlier, Chinese nationals had only purchased 23,075 homes, representing only 12% of all properties sold to foreign buyers then.

That’s still a small percentage of investment in U.S. residential real estate. As of 2018, foreign buyers accounted for just 3% of U.S. home sales, the association added. That figure had been rising, but experienced a modest decline between 2017 and 2018. The figures for 2019 are expected to remain similar to the 2018 levels.

‘The Chinese government could place stricter capital controls about taking money out of China and buying in America.’

—Lawrence Yun, chief economist at the National Association of Realtors

Long before the current trade dispute, the Chinese government had been creating hurdles for its citizens who wanted to invest abroad. The country started restricting outbound investments in 2016, allowing residents to take only the equivalent of $50,000 out of the country as a means of propping up the country’s currency. This not only made it more difficult to purchase real estate in America, but prompted some Chinese investors to sell their U.S. assets.

Read more: Major flooding in the South is a cautionary tale for all homeowners

A Chinese pull-back could have serious effects for some West Coast markets

Unlike foreign buyers from other countries who spread their investments more evenly across the U.S., Chinese residential real-estate investment is highly concentrated on the Pacific Coast.

Nearly 40% of Chinese buyers have purchased in California, thanks in part to the state’s large Asian community.

Chinese buyers also play a big role in the real-estate markets of college towns as more Chinese students have opted to study at American universities.

But California isn’t the only place where a fall in Chinese buyers would make a difference. Chinese nationals represent a significant share of the foreign buyers of residential real estate in the New York City metropolitan area and growing share of the buyers in states like Florida and Texas.

Chinese buyers also play a big role in the residential real-estate markets of college towns as more Chinese students have opted to study at American universities, Yun said.

However, a retreat of Chinese buyers could be good news for Americans looking to purchase a home, especially in the Golden State. Markets like San Francisco, Los Angeles and San Diego. They are among the most expensive in the entire country, and their popularity had contributed to double-digit home price appreciation in recent years.

The rate at which home prices are climbing has recently slowed as buyers have struggled with affordability. The lack of competition from foreign buyers, who typically make competitive all-cash purchases, could provide an opportunity to get a better deal on a home for locals looking to buy.

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