Real Estate Forecast: Where is China Buying?

China’s economy may be slowing, but it’s too soon to predict an end to the country’s strong appetite for overseas real estate. Even though declines in the stock market and the value of the renminbi have shaken up buyers, some have paused to reevaluate their situation, while others view the current economic conditions as a stronger motivation to move money outside China.

“For China’s ultra wealthy, a one- to twopercent devaluation of the renminbi isn’t going to have any significant impact,” says Simon Henry, co-founder and co-CEO of Juwai.com. “They’ll still invest in overseas property, although the destinations may change.” 

Even though Chinese individuals face a $50,000/year cap on overseas investments, many get around the rule by sending money through family and friends, channeling funds through export-oriented businesses, or simply accruing large amounts through years of planning. Recently, the government has threatened to enforce its rules more strictly, a move widely viewed as having the opposite effect, intensifying capital flight out of China.

Motivations

Like all international buyers, purchasing motivations can vary dramatically. However, Chinese buyers’ objectives often include:

Investment: Looking for good returns in income, capital gains and/or portfolio diversification.

Security: Place money beyond the Chinese government’s reach and into countries with strong property rights.

Family: Provide quality education for their children; may also prioritize safe communities, clean environment.

Residency: Some buyers may be drawn to special visa programs, like the U.S. EB-5 visa.

Leading Destinations

United States

After a years-long buying binge, the U.S. remains a favorite destination. The Chinese currently hold the number-one position among international buyers of U.S. homes and rank among the top fi ve international buyers in 46 of 50 U.S. states. Total U.S. property purchases by Chinese buyers are estimated at $28.6b for the year ending March, 2015.

Prices have been driven up in many of the most popular coastal markets, prompting buyers to take a closer look at other options, including central states. For example, the Stonewater community in a Detroit suburb is one of several destinations promoted in Windham Realty’s Shanghai office.

Wherever they shop in the U.S., Chinese buyers are more likely (than other international buyers) to be interested in luxury properties. On average, they spent $831,800 for their U.S. home during the one-year period ending last March, compared to buyers from the U.K. ($455,600), India ($460,200), Canada ($380,300) and Mexico ($274,800).

Australia

Chinese demand for Australian properties remains strong, although buyers are less focused upon Sydney. According to Juwai.com, interest in Victoria and Melbourne grew by 74 and 92 percent, respectively. Juwai.com attributes the surge in large part to a substantial growth in new residential developments. According to Credit Suisse, sales of Australian homes to Chinese buyers are expected to total $60 billion between 2015 and 2020, double the amount spent in the prior six years.

Canada

China’s wealthiest buyers of Canadian properties appear to be shifting their attention away from Vancouver and towards Toronto. In October, 2015, the average search price on Juwai.com for Toronto properties was nearly $2m, compared to $1.27m in Vancouver. A year earlier, however, the average search price for Toronto was $1.58m and $1.84m in Vancouver.

Luxury shoppers are still actively interested in both cities, but the same can be said of Chinese buyers at lower price points. Many families, for example, remain interested in $300,000 condo units intended for a son or daughter’s future use as a student at the University of Toronto. Plenty of new construction and lower-than-Vancouver prices are big draws, not to mention large Chinese immigrant communities in both cities.

United Kingdom

While President Xi Jinping’s visit to London in October 2015 spurred positive relations between the two countries, property prices have reached a point where Chinese investors are beginning to question further buying, at least in the heart of London.

The U.K. is also highly regarded among the Chinese for educational opportunities, ranked second only to the United States. According to Britain’s Higher Education Statistics Agency, 87,895 Chinese students studied in Britain in 2013-2014, including 58,810 newcomers.

Japan

Closer to home, Japan’s strong and safe economy, the weakness of the yen relative to the renminbi, and the upcoming 2020 Tokyo Olympics are all welcoming signs of steady investment returns for Chinese property buyers. The country is also a top vacation destination for Chinese visitors.

Other Countries

Based on Juwai.com’s data, several Mediterranean countries can expect growing interest among Chinese buyers, including Spain, Portugal, Italy, Cypress and Greece.

Report Card: Chinese Outbound Students

In China, college enrollment is soaring, but space is limited in the top schools, spurring many families’ search for overseas property. There are over 300,000 Chinese students in the U.S. alone, representing more than 31 percent of all international students in the country. While the top universities on both coasts are still highly desired, substantial interest is also apparent in the heart of the country, including giant institutions like the University of Illinois, Ohio State University and Michigan State University.

Does the study abroad trend impact housing markets? You bet. Quoted in The New York Times, Juwai.com’s Simon Henry claims that “if you look at the student populations of any major or nonmajor university, you’ll get a really good indication of what property prices are going to do.” The growth trend is also extending to younger students. About 23,500 Chinese citizens were enrolled in American high schools in 2013, the most recent year for which fi gures were available. Increasingly, Chinese families think it’s important to expose their children to Western education at earlier ages and many private institutions, eager for capital infusions, actively market to Chinese students.

The United Kingdom is another favorite destination for Chinese families seeking top educational opportunities for their children, also beginning several years before their university studies. In fact, Chinese interest has extended into ownership of private schools. Chase Grammar School in Staff ordshire is one such example, purchased in October 2015 by a Chinese-owned company.

Commercial Properties

Chinese demand for off shore commercial property is already strong, but expected to heat up even more, especially given more relaxed investment rules on Chinese corporations and institutional investors. By the end of 2014, for example, Chinese insurers only had 1.44 percent of their assets overseas, but are now allowed to invest up to 15 percent.

To be sure, Chinese companies have been snatching up or developing trophy properties across the globe. (See sidebar.) However, commercial property buyers aren’t limited to mega-deals by big Chinese companies. Increasingly, Chinese buyers are investing in small offi ce buildings, chain hotels, strip malls and other nondescript properties in or near major U.S. cities. While yields are certainly important, buyers are also motivated by diversifi cation and parking capital outside China’s borders.

5 Noteworthy Commercial Purchases

AUSTRALIA

1. China Investment Corporation, a state-owned sovereign wealth fund, bought nine office towers for $2.45b, Australia’s largest-ever real estate deal.

UNITED STATES

2. China’s Anbang Insurance Group Co. offered $1.95b for New York’s Waldorf Astoria hotel.

3. Oceanwide Holdings, a Shenzhen-listed real estate company, plans to build twin towers in San Francisco, including the city’s second tallest building, on a site acquired for $296m.

UNITED KINGDOM

4. Chinese developer Dalian Wanda Group plans to build Nine Elms, twin luxury towers on London’s Thames River, including the tallest residential building in western Europe. Flats will start at £1.3m.

FRANCE

5. The 192-room Marriott Champs-Elysées in Paris was sold to Hong Kong investment company Kai Yuan Holdings for €344.5m.

NAR's Field Guide to China Real Estate

For more excellent resources, be sure to check out NAR's field guide to China real estate, which includes:

• Chinese real estate websites
• Articles about real estate in China
• Chinese buyers in the U.S.
• Key real estate industry contacts
• Websites, ebooks, and other resources