Small investors join China’s tycoons in sending money abroad
Adam Dahill saw promise in the three-story brownstone on a quiet Bedford-Stuyvesant street, despite its weather-beaten facade, crumbling front steps and broken windows. But he needed nearly $1.3 million to buy it and turn it into the sort of Brooklyn dream home for which the city’s lawyers and bankers pay big money.
No problem. For funding, Dahill borrowed money from a new and eager group of international financiers: middleclass 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. Now, technology is opening the door for the smalltimers. 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 centre 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 longtime residents about getting priced out. “It’s causing a lot of resentment,” said Angelo Richardson, a 45-year-old selfdescribed entrepreneur who lives nearby. Richardson, who has lived in Brooklyn for 24 years, said his monthly rent had nearly doubled to $1,500 from $900 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 outside the country, 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 Crowd Fund China Society. “This is still a gray 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 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.