QDII2 Impact on Commercial Real Estate

QDII2 will allow Chinese investors to invest hundreds of billions of dollars in real estate throughout the world. Chinese investors spent over $28.6 billion on U.S. properties in 2014 and became the biggest group of international investors in the states, according to data gathered by Juwai. This number is expected to increase exponentially due to a new policy just approved by the Chinese government. Last week, China’s state council announced its approval of the Qualified Domestic Individual Investor program (referred to as QDII2). This program offers an unprecedented way for Chinese individuals to move much larger sums of money out of China as direct investment. Here’s what you need to know about the program and its effect on the domestic market.

Currently:
• Chinese residents can only move up to $50,000 USD out of China.
• The money can only be invested offshore indirectly by purchasing financial products through Chinese financial institutions.
• QDII2- enables Chinese institutional investors with a QDII license (approved by the Chinese government), to invest overseas. This is not available to most Chinese investors.

QDII2 Details:
• Allows individuals to invest as much as half their assets overseas (limited by overall quota and ceiling).
• Corporate investors will be permitted to purchase overseas assets up to $1 Billion USD in value, up from current limit of $300 MM.
• The program will be limited to the Shanghai Free Trade Zone, then it will be rolled out to the rest of Shanghai and five other cities including Tianjin, Chongqing, Wuhan, Shenzhen, and Wen Zhou.
• Chinese Individuals will be able buy overseas real estate, stocks and bonds directly.
• Eligible to those holdings assets of at least $161,000 USD.

Although timelines have not been confirmed yet, there is strong anticipation that the program will be implemented before the end of 2015. It is estimated that the QDII2 program would enable almost $661 billion of new Chinese money to flow into the international real estate markets.

by Kelvin Lam, Commercial Mortgage Banker