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Chinese Investments in Distressed Real Estate Assets in U.S., UK and Middle East-Robin Trehan

The Chinese are swooping in to save the day…well decades. Top countries, the U.S., UK and the Middle East have all been witnessing crises or near crises in their real estate assets market. The U.S., especially is having a financial meltdown due to multiple reasons -- bad choices, high interest rates, no jobs, etc. The UK is also up there with real estate problems. More and more homeowners are being faced with foreclosures and a lot have already lost their homes. It is a devastating situation, not just for the country, but for the world as a whole.

China is looking to invest in the distressed real estate assets in the U.S., UK and Middle East. So far, the China Investment Corp, or CIC, is planning to use $2 billion of their $200 billion sovereign-wealth fund to fund the PPIP (Public-Private Investment Plan), a U.S. government program that was created to get rid of toxic mortgage-backed securities from banks’ balance sheets. The U.S. Treasury and Federal Reserve is supposed to give subsidies to the investors for the purchase of the assets, which will allow the banks to be free of capital; they will then be able to make loans.

With the CIC investing in distressed real estate assets in the three leading countries, it will create a reverse domino effect. At first, when everything was falling to pieces, the U.S. began to suffer from a financial crisis and it slowly began to affect the rest of the world. Of course, it is not all completely on the shoulders of the U.S., the markets have not been doing well, so lots of people lost a lot of money. By helping the major countries, U.S., UK and Middle East, it will trickle down on the smaller countries as well.

The Chinese are perfect investors because they have the funding to help out with the real estate issues. China sees a lot of benefit in investing in the U.S. because when the economy reestablishes itself, they will make loads of money. They are buying real estate at bargain prices and will be able to resell them when the market is back up, for at least two to three times the amount it was bought, possibly more. The Chinese predict that the U.S. economy will be back up during the 2nd quarter of 2010.

CIC will also set aside $4 to $10 billion for other global property investments within the next year and a half. According to experts  by 2014, CIC will have over $20 billion in U.S. property investments. The financing that’s offered through the PPIP program is very appealing to the CIC, making it an even better bargain.

The Chinese have been eyeing U.S. properties and see them as major investments and in order to get financing for the properties, they are relying on their old partner, the U.S. government. It seems like not burning bridges behind them is working out for the Chinese after all. 

Robin Trehan is partner at Credit Capital Funding. More information about him