Shanghai restaurateur David Hu said he’s nervous about wiring money to Australia for a home purchase because of China’s crackdown on currency outflows. Instead, he plans to carry the cash in a suitcase.

The 61-year-old intended to move about $85,000 to Melbourne this month, the last part of his financing for a deal struck last year.

“Buying a property abroad was and is still workable,” said Hu, though he described the process as a “lot more troublesome” nowadays.

Tighter capital controls have done little to dent the appetite of Chinese buyers who already helped drive prices higher across the globe. While definitive data are hard to come by, real estate brokers including Knight Frank LLP, Savills Plc and domestic firm Shiju report rising purchases of overseas property this year. What’s changed is that the curbs have prompted buyers to look for cheaper homes in smaller cities, making down payments more manageable.

Part of the reason for the unhindered overseas purchases could be that authorities have already succeeded in stemming capital outflows after cracking down on the most acquisitive companies. That eases the need to enforce limits on individuals, a more difficult and costly process, said Steven Zhang, chief economist at Morgan Stanley Huaxin Securities Co.

“It’s a question of cost and benefit,” Zhang said.

Since the start of 2017, Chinese applying for their $US50,000-a-year foreign-exchange ($63,000) quotas must sign pledges that the money won’t be used for real estate. Violators face a range of potential sanctions.

Hu, the restaurateur, said he and a relative used their $US50,000 annual quotas to convert yuan into Australian dollars last year. Now, his desire to avoid regulatory scrutiny – and fees – has encouraged him to move the money by hand, a tactic that comes with its own risks, such as potential penalties in China and Australia for moving undeclared cash.

Smaller Deals

The impact of the increased currency scrutiny has been on the size rather than the quantity of deals. At real estate portal Juwai.com, the average price of overseas properties Chinese buyers inquired about dropped to just over $US292,000 this year from more than $US356,000 in 2016.

Some buyers are eschewing pricey hubs like New York for less-expensive areas such as Florida and Texas, according to Eric Lam, chief executive of Shiju, the overseas broker unit of Shenzhen World Union Properties Consultancy Inc. They’re typically spending up to 3 million yuan ($US450,000, or $573,000) for U.S. homes, and as much as 2 million yuan for U.K. properties, prices that make for manageable down payments using exchange quotas, Lam said.

Jones Lang LaSalle Inc. said it was mainly selling U.K. homes, often below $US500,000, and Cushman & Wakefield also highlighted surging Chinese demand for British property after the pound weakened following the Brexit vote.

Manhattan Project

Still, developers continue to count on demand for prime luxury housing from the wealthiest Chinese buyers. On Monday, a crowd gathered in a Beijing hotel as the first 16 apartments from the towering 125 Greenwich Street project, being built close to One World Trade Center in lower Manhattan, were offered up at prices from $US1.2 million to $US12 million.

“It’s about how determined home buyers are to get their money out, and whether their resolve is strong enough” to risk punishments for breaking the rules, said Lam. He acknowledged that growth would have been stronger without the capital curbs.

The undimmed appetite suggests Chinese money could continue to put upward pressure on prices, a trend that’s stoked concern among locals in cities from Vancouver to Sydney. Chinese buyers, mainly from the mainland but also from Taiwan and Hong Kong, spent a record $US31.7 billion on U.S. residential properties in the year through March 31, remaining the biggest foreign force in the market, according to the National Association of Realtors.

Three months ago, standing near an advertising display in Beijing for luxury apartments in Vancouver offered by Canadian developer Westbank, sales agent Regina Li was asked by a reporter how people get their money out for purchases. “Clients all have their ways,” she said.

It turns out that the traditional routes still apply: faking explanations on bank documentation for money transfers; borrowing the bank accounts and foreign-exchange quotas of friends or relatives to make multiple small transfers that move a large sum, an illicit method sometimes called “smurfing”; or shifting money through underground banks, according to agents and buyers who spoke on condition of anonymity for fear of drawing government scrutiny.

In some cases, wealthy individuals already have cash abroad or friends with access to foreign currency who are willing to lend the money overseas and be repaid in yuan on the mainland.

Larger payments can be routed through underground banks, many based in Hong Kong, which accept Chinese yuan onshore and put dollars into a client’s offshore account. Yet the increased scrutiny has driven transaction fees as high as 3 per cent this year, from typical levels below 1.5 percent last year, the people said.

One reason for the continued buying may be an absence of publicised punishments of rule-breakers. At the end of last year, the State Administration of Foreign Exchange said violators could be added to a watch list, denied foreign-exchange quotas for three years, or investigated for offences including money laundering.

A stronger yuan has also helped allay officials’ concerns about outflows, said Iris Pang, an economist at ING Bank in Hong Kong.

Data from some of the biggest property agencies paint a rosy picture of demand for overseas property:

Knight Frank’s sales in China more than tripled by value in the second quarter from a year earlier and may set records by volume and value this year.

Shiju said it sold 30 percent more homes in the first eight months and is on track for a record by volume. The total value of purchases slipped slightly, the company said.

Savills this month said business “increased slightly this year from a year earlier,” without being more specific.

Interest in offshore homes surged among buyers in Beijing when the city tightened local market curbs in March, according to Knight Frank. There’s also strong demand among the wealthy in smaller cities like Quanzhou in southern Fujian province and Yixing in eastern Jiangsu, the agency said.

For buyers like Shanghai restaurateur Hu, the appeal of overseas property lies in part in the fear that China’s decades of robust growth could come to an end.

“China’s economy could become unstable,” he said. “It would make me feel insecure to have everything in one basket.”

This story was first published by Bloomberg