Takeaways:
- The Chinese stock market has lost 30 percent of its value and continues to see major swings.
- More then half of Chinese citizens are now considering buying foreign real estate.
- Different segments of the Chinese will invest in various ways.
As the Chinese stock market has lost 30 percent of its value and continues to see major swings, many are wondering about the implications of this volatile stock market.
One implication that is not fully understood yet is the effect of the volatile stock market on the billions of dollars that Chinese have been spending every year on U.S. real estate.
Will this volatile China stock market further accelerate this investment in U.S. housing or maybe just create the opposite effect?
My firm, East-West Property Advisors, which connects Chinese buyers with U.S. Realtors, performed a survey via WeChat (Weixin), the top social media channel in China. We had numerous conversations with clients.
Due to the volatility in the China stock market, more than 50 percent of Chinese citizens who spoke with us are now considering acquiring overseas real estate.
The opinions about why and how they will do this vary depending on the segment of population:
High net worth Chinese citizens
High net worth Chinese citizens have been buying U.S. houses for several years, and the volatile China stock market is not affecting their behavior.
These individuals consider the Chinese stock market a “gambling place.” While they have some part of their wealth invested in the Chinese stock market, it is only a minuscule amount.
Other wealthy Chinese, however, are now determined to accelerate their buying process. They have lost confidence in the Chinese economy, and they believe that the overseas real estate market is more stable.
For example, Mr. and Mrs. Zhu live in Beijing and currently own a dozen apartments across China. Over dinner, they made it very clear, “Our goal is to sell our apartments over the next two years and move the funds into the U.S. and U.K. real estate market.”
Ms. Lam, a middle-management professional, based in Shanghai, agreed and said, “I think the interest [in U.S. real estate] will go up since the volatility of [the] stock market will have a huge negative impact on Chinese people’s confidence in China’s economy. Since real estate prices in [the] U.S. are relatively stable, it should be a safer option for [the] Chinese investor.”
Mass-affluent Chinese citizens
Some other mass-affluent Chinese are looking to have more exposure to overseas investments — but not necessarily real estate.
Ms. Yi, a relationship manager in one of the largest Chinese private wealth management firms, said that her clients will add more exposure to the overseas markets for sure.
She said that her clients are desperately looking for partners who can introduce foreign investment products to them. “Not just in real estate, but also other asset classes such as fixed-income products,” she said.
Less-affluent Chinese citizens
Some other Chinese citizens, however, are not able to invest in the overseas market. Foreign real estate typically has a higher price point, and many Chinese cannot afford that, nor do they have the means to transfer the money out of the country (there is a 50,000 USD limit per person per year in transferring money out of China).
Furthermore, this segment of the population has invested a lot of their savings in the stock market, so they are in a difficult position now to sell their stocks.
Overall, it can be concluded that the volatility of China’s stock market has created more interest in overseas investments. One segment of the Chinese population (high net worth individuals) likely will accelerate their purchase of overseas real estate with the U.S. being the first choice.
Mass-affluent investors have started buying more foreign investment products as well, while the less-affluent investors will likely keep investing in the China stock market.
Sam Van Horebeek is a director at East-West Property Advisors, a U.S. real estate advisory firm based in China. You can follow on Facebook and Twitter.