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A look ahead: Paul Hastings

The law firm predicts that after temporarily scaling back outbound investments, Chinese authorities will ease policies to allow institutions to invest overseas.

Outbound investments from China into international property markets is expected to resume to high growth levels in 2016 following a temporary period of push back amid economic jitters in the domestic market.

According to David Blumenfeld, a Hong Kong- and Shanghai-based partner at law firm Paul Hastings, the Shanghai stock market troubles affected the volume of outbound property investments for only about five months.

“We saw tightening of regulatory policies for a brief period of time. The growth in outbound investments stopped and went down. However, it is now on its way back up again,” he said. “China is aspiring to make RMB (the Chinese currency) another reserve currency. It has to allow capital inflows and outflows.”

China’s stock market crash that began in June this year shed off a third of the value of the Shanghai composite index, prompting the government to enforce a series of rescue measures to abate the panic and capital flight from the country, including an unprecedented 3 percent currency devaluation. As regulatory constraints start to ease, Paul Hastings also expects an increase in the number of smaller deals by Chinese investors into non-gateway markets. For instance, deals with ticket sizes of $100 million in second-tier US cities such as Seattle are expected to gain traction among smaller-sized developers and institutions.

According to Jia Yan, partner in the firm’s corporate department, and vice office chair, Shanghai, Chinese investors would also begin to invest more in the “health and happiness” and natural resources sectors in other markets next year.

The Chinese developers, who led the wave of Chinese capital into overseas markets, would begin to get more localized as they strengthen their overseas portfolio and start hiring more professionals on the ground, according to Blumenfeld.

“Outbound investments are expected to continue to grow. On the other hand, there is not a huge change expected in terms of inbound investments until something spurs the market,” he added.