Adam Dahill saw promise in the three-story brownstone on a quiet Bedford-Stuyvesant street, despite its average facade, crumbling front steps and broken windows. But he needed nearly $1.3 million (£1.06 million) to buy it and turn it into a dream home for which the city’s lawyers and bankers pay big.
For funding, Dahill borrowed money from a new group of international financiers: middle-class Chinese investors.
“I don’t discriminate if someone wants to finance the property we developed,” said the 36-year-old Dahill, who works as a mortgage broker by day. “Chinese? Great. American? Fine. I don’t care as long as they’re interested.”
China’s wealthy have long bought up properties around the world. Thanks to technology, doors are now opening for the small-timers.
A new generation of smartphone apps and online lending platforms in China and around the world are helping small investors leap legal and language barriers to put their money to work globally. This informal lending network – which allows Chinese investors to fund overseas projects and buyers – largely bypasses banks and other traditional sources of funds, bringing money to places as varied as a sports center in Illinois and apartment blocks in Tennessee.
But it also adds to the fire hose of money pouring into flush places like New York and the San Francisco area, where foreign investors are among the reasons property prices are high and rising. That includes Halsey Street, which is only blocks from big developments like Brooklyn’s Atlantic Yards, which have long received funding from China. Money is transforming the neighbourhood, raising property values but worrying long-time residents about getting priced out.
“It’s causing a lot of resentment,” said Angelo Richardson, a 45-year-old self-described entrepreneur who lives nearby. Richardson, who has lived in Brooklyn for 24 years, said his monthly rent had nearly doubled to $1,500 (£1,220.85) from $900 (£732.36) in just two years.
The digital flow of money from China’s teeming cities to Brooklyn’s brownstone-lined streets is part of an exodus of wealth, as people in China look to diversify at a time of worries about the slowing economy and the country’s growing political and social challenges. But China heavily restricts the flow of money out of the country, and the new technology represents undefined territory.
These new financial platforms “hire really good lawyers,” says Xiaochen Zhang, a co-founder of the advocacy group CrowdFund China Society. “This is still a grey area, so lawyers play a big role.”
Zhang Xiaowen, a 36-year-old serial entrepreneur from Jiangsu Province in China, put up about $4,500 (£3,661.81) that Dahill tapped on an online lending platform. The deal promised a quick 13 per cent return that – crucially, for Zhang – will be paid in American dollars. Zhang initially invested Chinese renminbi, meaning he is effectively moving part of his wealth offshore.
“Otherwise,” Zhang said, “transferring money out of the country can be so difficult.”
The new routes to get money out of China show how the country’s fast-moving technology scene once again has leapt ahead of regulators. A broad array of apps and services give average Chinese consumers new ways to spend, transfer money and even invest, sometimes in ways that surpass what people are able to do in the United States.
China cracked down on money flowing abroad this year after investors began shifting funds out of the country at an alarming rate, contributing to a sharp drop last year in the country’s foreign exchange reserves. Last month, China took new steps to stop the outflows, increasing scrutiny of big foreign deals and requiring clearance for transfers of $5 million (£4.07 million) or more.
So far, the new investing channels have largely been unaffected. Mobile apps like Niuniu, Jimubox and Tiger Stocks allow investors to buy and sell foreign stocks from their smartphone. Online portals allow them to pool their money to buy a piece of international real estate outright, or to fund buyers abroad like Dahill in New York.
Unlike other ways China’s wealthy invest abroad, these new services are often priced for ordinary people. Micai, a “robo-adviser” app that also provides online investment services, has an investment threshold of $5,000 (£4,070.34). Wealth Migrate, a South African crowdfunding platform that was introduced in China this year, is experimenting with $100 (£81.41) real estate investment products.
“The Chinese people have the same needs as other investors,” said Scott Picken, the chief executive of Wealth Migrate. “They want wealth preservation and peace of mind.”
Zhang, the investor who partly backed Dahill’s property, made his investment through the website of Haitou360, a New York-based investment service with offices in China. Haitou360 – the Chinese portion means “to throw into the sea” – then aggregated investments from clients to buy loan packages from well-known American crowdfunding platforms like RealtyMogul and Patch of Land.
China limits Chinese currency transfers abroad by individuals to no more than $50,000 (£40,703.53) worth a year. But Haitou360 structures its investments so that a legal entity essentially acts on behalf of individual investors, bypassing those limits.
“We solve multiple problems – we manage the risk of overseas real estate investment, and we overcome the capital control limits everyone has,” said Jerry Wang, the chief executive of Haitou360. The structure puts the onus on individual investors to make sure they comply with China’s capital controls, he said.
Through these channels, Chinese money has found its way into real estate projects far beyond a few Brooklyn brownstones: homes in New Jersey, medical facilities in Georgia and motel chains. Oversea Crowd, a Chinese private equity firm, has used crowdfunding to raise investments starting at $10,000 (£8,140.67) from Chinese clients to help fund several luxury student apartments near public universities in Georgia and North Carolina. Their latest apartment complex financed through crowdfunding will soon open near Harvard’s business school.
For investors, the returns depend on the period of investment – sometimes up to five years, other times, only 30 days. On average, longer-term investments have returns of 9 to 11 per cent. The company collects an upfront fee, usually equal to a percentage of the investment. Investors receive returns in foreign currency, usually dollars.
Before he helped fund Dahill’s loan for the Brooklyn brownstone, Zhang, the Haitou360 investor, invested a small amount of money online as a test. Two months later he received a return of a little more than $6 (£4.88), a tiny amount but one that won his trust in online investment.
He is now considering a “study abroad” investment product that would allow him to begin investing in American real estate immediately. Future returns would be directly transferred monthly to his son, now a child, to pay for tuition and living costs if he were to attend college in the United States.
Some on the receiving end of that money flow are looking for ways to deal with it. In Bedford-Stuyvesant, Halsey Street is in transition. Down the street from Dahill’s house, city notices and plywood affixed to brownstones denote more homes under construction. Another house nearby had a “for sale” sign.
Block associations are asking local homeowners to let them know before listing a home so that they can tap nearby residents to find potential buyers.
“We are seeing international investors who are spending money and moving on properties here. It is changing the complexion of the community,” said Tremaine Wright, the chairwoman of Community Board 3, the representative body for Bedford-Stuyvesant. She is a lifelong resident of Bedford-Stuyvesant whose parents and grandparents have also lived in the neighbourhoodd.
“Bed-Stuy has long been a community of people who owned their homes and resided in their homes,” she added. “Now it’s being changed into a place where a lot of people are investing money and not making a longer-term commitment.”Risk Warning:
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