When international deals go bad, you can't always blame the language barrier.

Transactions of Chinese real estate investment in the US more often fail because of a difference in culture and expectations than because of a difference in language, experts said.

Real estate may be the most highly regulated and taxed asset class in the US and is considerably more regulated and taxed than in China, which can be challenging even to the most sophisticated and experienced investor, Alan Pomerantz, a senior counsel with Pillsbury Winthrop Shaw Pittman LLP, recently told a panel on Chinese investment in US real estate in San Francisco.

In addition to the regulations at the federal level, each state has different regulations that come in the form of ownership restrictions and environmental reviews. On the tax side, while there exists a tax treaty between the US and China, it generally does not apply to taxes imposed on profits by states, cities and counties.

"One of the barriers to entry in doing business in the United States for Chinese investors is failure to understand the nature of the laws of the United States when things turn not so good," he said.

"The problem is the market always goes down, it always has and it will again," said Pomerantz. "When it goes down what happens in China is banks and borrowers sit down and talk about it. In the United States, not only do they not do that, the law prohibits them from doing that."

"Chinese people do not use lawyers the way US people use lawyers," he added. "We'd like to say that in China the negotiation starts after the deal is signed; in the US, it's exactly the opposite."

It would be a "big, big surprise" for Chinese investors and their US partners, US construction companies and US banks if they were not aware of when there's a hiccup in the real estate market, Pomerantz said.

Chinese people believe the most important thing is the relationship and that guanxi, or relations, can fix almost anything, said Thomas Shoesmith, a partner at Pillsbury who leads the firm's China practice.

The truth is, he continued, in the US, the documents rule -- not the relationships. "Rules are rules and the rules are not flexible," he said. "Government officials have very little ability to bend rules to help businesses make deals."

When making decisions, Chinese investors tend to rely on trust, according to Zhengyu Huang, chairman and founder of ImmCaptial, a Chinese immigration capital service firm.

When asked why they made the investment, the Chinese investors would say "someone I trust invested there and told me to invest", he said.

Shoesmith said rules, not trust, are key to successful transactions. "In China, often business is personal. In the US, business is business," he said.

"I've seen a lot of deals. I've never seen a projection that didn't make money, but not every deal makes money," said Pomerantz. "It's easy to give your money to somebody to buy something. The barrier is how to make money and how when things don't turn out exactly the way the projection shows, which is almost always the case."

In recent years, Chinese companies and individuals have accelerated the pace of acquiring commercial and residential real estate in the United States, owing primarily to its position as the largest, most liquid and most stable market in the world, according to a recent report on Chinese investment in US real estate by the Asia Society and Rosen Consulting Group.

In 2015, direct real estate acquisitions by Chinese investors reached at least $8.5 billion, which represents a compound annual growth rate of 70 percent since 2010, according to the report.

"The one country that has the liquidity, the opportunity and the size to accommodate Chinese interests is the United States, so the long-term destination and long-term perspective is there," said Huang.

"I think they are going to make quite a bit," he said. "It will be a quick learning process. We've seen Chinese investors made mistakes. They learn super quick and they come back stronger."

liazhu@chinadailyusa.com