Stymied At Home, Chinese Hunt for Property Abroad

Property speculation has long been a problem in Chinese housing markets. Now Chinese investors are also trending towards buying property overseas. From Reuters:

Stifled by a clampdown on property speculation at home, cash-rich Chinese are buying up homes in Australia, the United States, Britain and Canada instead, countries popular with Chinese students studying abroad.

“Australia allows higher leverage and its legal system is better,” said Sun, who plans on migrating to Australia to live in one of her newly-bought homes and rent out the other two.

Property developers are courting the international rise of the wealthy Chinese home buyer with ardour, marketing their projects in Shanghai and Beijing.

But while Chinese buyers, or any buyers for that matter, may be welcome in severely depressed property markets such as those in the United States, the UK or parts of Europe, the inflows of Chinese money are causing headaches for economies elsewhere which are growing at a much faster clip.

Singapore and Hong Kong, for example, have found it tough to keep a lid on surging home prices amid strong demand from Chinese nationals, despite government efforts to cool the market and stave off destabilising asset bubbles.

This phenomenon seems driven by interest as much as monetary policy. With an appreciating yuan, property abroad is now affordable.

Now, the drop in housing prices and a steady renminbi have created an opportunity for wealthy Chinese to invest in real estate abroad, said Rupert Hoogewerf, CEO of the Hurun Report, a web portal that provides information on China’s wealthy.

“What used to cost US$1 million now costs US$800,000,” he said.

Hoogewerf estimates China is home to more than 50,000 people with a net worth of over US$10 million, and more than 800,000 with a net worth of US$1 million. But Chinese law restricts individuals from taking more than US$50,000 out of the country in one year.

According to Hoogewerf, the restrictions mean buyers are predominantly traders, or those with businesses that export overseas. These people have stockpiles of US dollars and the savvy to navigate real estate overseas.

Investing abroad generally means a combination of increased opportunity and a perceived increase in risk at home, said Michael Pettis, a professor of international finance at Tsinghua University. Last year, China saw a large influx of hot money and a record trade surplus of US$290 billion. Although much of this cash is now moving in the opposite direction, the flow is not as strong as that which brought it in. This leaves experts to infer possibilities from other trends.

While it’s still too early to tell whether these prospective US homeowners herald a shift in Chinese spending and investing habits, it is worth monitoring the movements of small business owners, said Pettis.

“They’re the ones that have the best sense of what’s going on at the ground level,” he said. “It’s good to watch what they are doing.”

April 13, 2011 9:45 PM
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