China’s soft power as the world’s biggest property buyer is under severe strain due to a government crackdown on capital flight and the Qatar controversy, which is expected to drive a lot of Arab money into the property market in western countries.

Qatar citizens are desperately looking for alternative investment avenues as Saudi Arabia and the United Arab Emirates recently cut off relations with their country, and issued orders making it difficult for them to hold property in different Arab countries, property sellers said.

“I think the key is uncertainty…So the entire Middle East has an unrest,” said Sajid Bashir, CEO of the London-based Copperstones International Properties. “Then unrest creates panic, then panic creates diversification because people become mindful to think, Oh, what if Qatar gets blocked again?”

Qatar has emerged as the single biggest foreign source of investment in London properties in recent years, with government agencies lapping up major buildings like Harrods, he said.

“I think because the government has been investing (abroad), they have been mindful of this problem. Now the people realize that ‘we cannot keep all the money in Qatar, and we cannot trust Dubai and Saudi, and we cannot obviously go to Iran because it is on the sanction list’. So that doesn’t leave you many choices,” Bashir said.

Investment bonuses

Though fund outflows have reduced, Chinese buyers are still finding ways to invest in foreign markets, some of whom offer long-term residency for property investments.

This was evident at a recent Luxury Property Show in Beijing when dozens of foreign companies exhibited investment opportunities with a wide range of lucrative offers, including long-term residency and quasi-citizenship.

Several European and other countries, including Greece, Malta, and Spain, have been offering “golden visas” linked to minimum property investments ranging between $350,000 and $700,000.

“If you buy any kind of property for 250,000 Euros, you will get the residence permit for you, your wife, you children, and your parents and parents of your wife,” Anna N.Druhakova, CEO of D&A Invest from Greece told VOA at the LPS in Beijing. The residence permit will continue as long as the owner holds the property, she explained.

Agents are also approaching Chinese investors with promises to help them meet the requirements of EB5 visas in the U.S. For long-term residency, investors in business or commercial property need to prove that their investments have helped generate direct or indirect employment for at least 10 persons.

Capital flight crackdown

Apart from business investments, Chinese buyers poured $33 billion on home and commercial properties overseas in 2016, a 53 percent jump over the earlier year. The “capital flight crackdown” by the Chinese government has seriously affected headline grabbing investments of landmark buildings across major western cities, including London, by major Chinese companies.

Thousands of Chinese are still buying homes and commercial property in foreign markets as a combination of savings and their quest for foreign residency. They are finding innovative ways to take money out of the country with the help of real estate agents and shadow banking channels, sources told VOA.

Andrew Collier, managing director of Orient Capital Research in Hong Kong said the government’s main focus has been to curb foreign currency outflows. It has achieved considerable success in stopping major foreign investments in commercial property and businesses like entertainment that the government does not want to encourage.

“It is not clear if they (government) have been effective for the small consumers who are doing small overseas investments. But the data is not clear,” he said.

Government controls on fund outflows may have played a role in pushing up property prices in the domestic Chinese market. What is significant, said Collier, is the government has a vested interest in keeping the price high.

“If property prices come down, people are going to be much more eager, they are going to be rushing for the exit to get their money overseas. So that is another reason why the government is eager to keep the property prices up,” Colliers added.
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