The Financial Impact Of China’s QDII2 On Global Property Markets

A recent report from Chinese real estate specialists Juwai.com has attempted to measure the impact on the global property market as China calibrates the constraints on allowing the population more freedom in investing overseas.

With QDII2, the Chinese government proposes taking a significant step towards removing restrictions on the export of privately held capital. As currently sketched, QDII2 will theoretically enable US$6.61 trillion (RMB 41 trillion) of Chinese wealth to be invested in international real estate and other assets.

Quantifying the increased capital flow to real estate Juwai.com estimates QDII2 –if rolled out nationally– could theoretically deliver as much as US$2.3 trillion to international residential real estate markets alone.

The likely amount is probably closer to US$661 billion. The latter figure depends on a reasonable estimate that wealthy Chinese individuals allocate approximately 10 percent of their total assets to international real estate, both commercial and residential.

The size of these figures highlights that, if China undergoes a material liberalisation over the next decade, the increase in gross flows will likely be very large relative to the world economy.

QDII2 Facts

QDII2 will remove a barrier that has limited overseas real estate purchases, and help China get closer to its goal of allowing investors to freely transfer money in and out of the country.

The country started on this path in 2001, when it joined the World Trade Organization. The abbreviation, “QDII2”, stands for the Qualified Domestic Individual Investor program. The number “2” in the name distinguishes it from an early program with the same initials, the Qualified Domestic Institutional Investor program, or QDII.

Some QDII2 Facts:

  • First to be rolled out in six cities across China.
  • To enable Chinese individuals to buy overseas real estate, stocks and bonds directly.
  • Individuals holding assets of at least RMB1m (US$161,000) will be able to participate.
  • Individuals will be able to invest as much as half of their assets overseas.
  • Will be limited by an overall quota that places a ceiling on the total amount allowed to be invested via the program. This quota is expected to grow over time.
  • Corporate investors will be permitted to purchase overseas assets up to $1 billion in value, up from the current limit of $300 million.
 

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