In the latest episode of the NAREIT Podcast, Rodney Ramcharan of the USC Lusk Center for Real Estate analyzed the impact of China’s currency devaluation on the real estate industry.
In recent weeks, China’s central bank has lowered the band within which its currency, the yuan, trades against the U.S. dollar. Furthermore, the value of the currency has been allowed to trend towards the bottom of that trading range. As such, the value of the yuan against the dollar has gone down. Ramcharan noted that the effect of the devaluation has been to make Chinese exports more attractive in the United States.
Ramcharan outlined potential outcomes from the devaluation. He pointed out that devaluing the yuan reduces the purchasing power of Chinese investors. Additionally, he said the devaluation could produce an expectation that the value of the currency might fall further, leading to an outflow of capital from China in the short run. For the real estate industry, an outflow of capital from China could mean greater interest in investment in the near term, according to Ramcharan.
On the other hand, China’s overall lack of transparency makes it difficult to parse out the government’s objectives with the currency devaluation, according to Ramcharan.
“Given that the government has undertaken this largely unprecedented move, it might signal that fundamentals in China are much worse,” he noted. Consequently, Chinese investors would have less capital to spend abroad.
“The devaluation could very well signal that capital flows out of China could be weakening,” Ramcharan said. If so, that would mean smaller inflows of capital into the U.S. real estate market, he said.