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How the TIKTOK SALE could DEVASTATE U.S. real estate

If the Trump administration succeeds in forcing the sale of Chinese online video platform TikTok, the results could reach far into the U.S. real estate market. The short-form video app is facing a looming deadline of September 20, 2020, by which time the American portion of the company must be purchased by an American company or be banned from the country. President Trump issued an executive order to this effect in early August, saying TikTok represents a national security threat because its owner, Beijing-based ByteDance, could be compelled to share user information with the Chinese government. TikTok has adamantly denied these claims, as has ByteDance.

If the ban on the app goes through, TikTok could swiftly become what one analyst called “a shell of its former self” because it would no longer be available for download in the United States and could not be updated by users who already have the app on their phones. The company has said the executive order is illegal because it was denied due process. The Chinese state media has referred to the forced sale as “a smash and grab” and “open robbery”.

For U.S. real estate investors and the U.S. real estate market, however, the issue is less about videos and more about Chinese real estate investors’ sentiments about the United States. Trade policy experts warn that the move to force a TikTok sale and an associated ban on Chinese social media platform WeChat are creating logistical nightmares for many Chinese investors with assets in the United States. WeChat is the primary way that Chinese investors “fanqiang” with service providers, property managers, and vendors outside of China. The term refers to scaling the “Great Firewall” of China. “If you’ve lost WeChat, you’ve lost everything,” a Sotheby’s broker warned in early August when WeChat was banned in the United States.

More troublingly for investors even than losing the ability to communicate with those outside China, however, is the idea that the United States might be declining in its level of safety for foreign investors. Long the undisputed leader in international business and investing thanks to strong private property laws (nearly nonexistent in China) and a government that, by Chinese standards, stays almost entirely out of the way of private enterprise, the United States could be considered a riskier bet in the future. Bill Reinsch, a trade expert at the Center for Strategic and International Studies in Washington, observed, “This is an administration that believes…instead of letting the market decide things, we should regulate.” While that may not be the entire picture with the bans on TikTok and WeChat, it likely appears that way to investors based outside the United States, particularly in China.

Other analysts agree with Reinsch, predicting that the decline in Chinese interest in U.S. real estate could doubly affect the market. Not only will foreign investors likely consider U.S. investments riskier if they are unable to directly monitor them; the U.S. could become a “political risk” that might cause Chinese lenders to think twice about pumping capital into local markets. Chinese participation in the physical property market in the United States was already waning. In 2019, Chinese investment into U.S. real estate totaled “only” $827 million, down from a record-setting $19.5 billion in 2016. Many Chinese investors are have also been facing pressure from the state government of China to sell off foreign assets, so this trend is likely to continue. Chinese banks say they worry they will no longer be able to do business in the United States, calling this scenario “the other shoe that has yet to drop.”

This week, the U.S. Commerce Department began drafting the documents that would implement the bans on both TikTok and WeChat. However, the bans may not extend past American soil, which might mean companies with operations abroad could still use WeChat. Many companies both inside and outside American borders say the two bans should not be conflated, since TikTok is facing a forced sale and the WeChat ban could, according to some unnamed White House officials, only impact overseas operations or have major exceptions, such as permitting Apple to continue to use the app to do business in China.

Do you think these bans are a good idea?

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