By Allan Air
Overseas property is the investment of choice for a large and increasing number of mainlanders. High Yuan appreciation, luxury and surroundings exceeding their own lands, and return on investment almost guaranteed. The questions arewhere is all this money coming from, are Asian buyers propping up overseas realty markets,
will this trend of buying continue, is much of China wealth leaving the country, and when the bubble eventually bursts in China will there be a mass sell of overseas property or will there be exodus.
The Chinese property bubble has already burstthe only people who have not noticed are the ones trying to buy their first home. Professional investors and 2nd home buyers are finding it harder to add to their property portfolio with the belated government home buying restrictions. Since 2010, 2nd and 3rd tier cities in China saw developers slashing new build prices by up to 50 percent, while 1st tier city prices are stable due to hard working class locals and migrants looking for their first home. The further you travel out of the city limits there are many bargains from housing developers who are finding it hard to sell at the original planned price.
It makes sense to look elsewhere if you have the money to splash. The overheated Asian realty market (especially in China) now accounts to the 30 percent of overseas global home purchases by Asian. It a well known that Asian buyers propped up London luxury property market when it was stale, and will continue to do so around the world. Other factors driving Asia overseas spending spree are currency devaluation and tight bank lending practices in the EU, UK and U.S. As long as these factors continue the trend of buying overseas property will continue.
The day will eventually come when China has to turn consumer, an internal economy, out priced by other nationshunger for what they have. Cheaper labor overseas and the heated Yuan valuation will contribute to the problems facing China future GDP. This could very well be from the USA with a thwarting currency, some Western European countries, struggling Asian countries or even Africa. When you look at what a hungry beast an international corporation isthe way they were attracted to China for use of cheap labor. They will as easy leave as they came. China heightened technology and local economy will keep them floating, for a time. At the level of governmental finance and global economy, all the trillions in China foreign currency reserve will not help them, as the more they sell the higher the value of their own Yuan currency will go. In the current situation, the only reason China buys billions in EU and U.S. bonds is to keep the value of these currencies high, ensuring the Yuan currency stays at a reasonable low level, which keeps international trade rolling in. In a global financial geo political level, owning an overseas property may not see a return on investment when considering currency, inflation and the local market, but it is seen as a safe investment, much like a low yielding Bond which does not even beat inflation.
What goes up must come down, and if China crashes as high as it rose, having a couple of homes around the world will come in handy, to sell or to live.
One man loss is another man gain
Fractional reserve banking and easy money- mortgages and bank loans in over developed economies created the property bubble, which bust in 2008, knocking-off ten years price appreciation from housing, which was followed by the fear factor around the world causing a mass exodus from stock markets pushing the wise investors into cash deposits, currencies and bonds.
Much of the spare cash sitting in the banks and cash deposits of weary investors from financial markets found its way into the global luxury housing scene. The attraction being market correlated prices, high rent yields, guaranteed return on investment mid to long term. Plus the people who buy expensive things are usually the ones with cash to burn. In harsh economic times the wealthy keep on spending. Luxury properties in key locations and well desirable post codes around the world have continued to climb steadily, at the same time, working class and lower class housing has taken a beating.
Chinese property investors have spread their wings far and wide for all sorts of reasonsvacation homes, children studying abroad, emigration, pure investment, or just somewhere stable to save wealth (in bricks and mortar).
Mainlanders have taken over from those in Hong Kong and Taiwan to become the largest immigrant community in Canada. In addition, London and Melbourne are also hot cities which are attractive to mainland property investors. Luxury houses are preferred.
Big spenders are mainly from southeast China, such as Shanghai, Hangzhou and Wenzhou; in addition to Beijing and cities along the coast, many are the owners of local private enterprises who regard high price luxury housing as investment objectives more than half of the transactions are one-off payments.
Much of the new interest in overseas real estate is linked to the ongoing debate and current restrictions set by the Chinese central government in buying multiple homes on the mainland. Up-front capital to buy a first home can be between 30 and 50 percent, putting stress onto new home buyers, combined with the current tight bank lending trend, puts a stale outlook in China housing market for the coming three to five year.
The rising number of Chinese overseas property buyers has been well noticed, accounting for purchases in 2012, Chinese mainlanders made up 30 percent of investments in London, Toronto, Vancouver, and Singapore. The large amount of transactions in London for instance (six billion pounds) has boosted central London property valuations while surrounding boroughs have not risen in value.Overseas buyers look to find haven investments to protect their wealth from the turmoil affecting other asset classes. As with most investments, there is a risk levelis the protection of capital more important than return on investment?
Hong Kong Not so Hot/b>
Prices of residential properties in Hong Kong are currently the highest in the world but investors are turning away due to the Hong Kong government's enforcement of a new 15 percent buyer's stamp duty on non-locals and corporate buyers that was introduced on 26 October 2012. Hong Kong is no longer one of Asia's top investment destinations due to its sky high property prices. Hong Kong emerged 11th most desirable Asian property investment location this year, with Jakarta taking the Hotspot, followed by Shanghai and Singapore.
At the same time, Western based developers and property vendors are keen to sell to Chinese investors. It a hard market to access with a complex range of language, culture, social and economic differences.
Everlasting Price Tag
It not just London or New York that hold all the glitz and glam. Every city in the world has its own well heeled neighborhood, which are being looked upon as collector pieces, where prices will go as high as the buyer is willing to pay. The price tag on property in these famous streets will start from seven digits, in dollars, euro or sterling: Steiner Street, Avenue Foch, Nettleton Road, Hambros Alle, Andrassy Avenue, Tower Road, Ostozhenka Street, Avinguda Pearson, Herengracht, and Avenue Princess Grace are amongst many high end locations which attract the big spenders. And these are just the tip of the iceberg, off the top of my head.
While UK buyers continue to be held back by economic uncertainty and mortgage drought, mainland Chinese investors have money to spend. The country has the fourth largest number of high net worth individuals in the world. And, following recent changes in taxation in China and with the exchange rate on the Chinese Yuan up 50% against the Sterling since the end of 2007, they have a real appetite to spend it in the UK.
Properties in key locations in fancy neighborhoods in Kensington, Virginia Water, and Chelsea have an average house price between two and five million pounds. Chinese buyers accounted for more than 5% of residential purchases in central London in 2012.
Overseas buyers made up 30 per cent of the Australian market for 2012. Singaporean, Hong Kong, and Malaysians were among the buyers. Chinese investment is being driven by rising wealth and appreciating Yuan- a desire for secure investments and freehold laws. Unlike in China, once a buyer purchases property in Australia, it's theirs forever and can be passed down from one generation to the next.
Another factor driving investment is the Australian education system. There are 160,000 Chinese students in Australia, and many Chinese families who can afford it would prefer to buy an apartment nearby.
Buyers from Shanghai ranged from two-bedroom apartments priced at $300,000 to a luxury beach-front home for $18 million around Melbourne.
Wolseley Road in Sydney is the most expensive residential street in Australia and its status stands as Australia's ultimate address, with 16 of the top 100 most expensive houses in Sydney.
A new wave of buyers from China are snapping up luxury properties across the U.S., injecting billions of dollars into the country's residential-real-estate market. Super rich investors credited with pushing up prices in London are now looking to California as the US real estate market looks to lift itself up off the ground.
While lenders are still keen to avert foreclosures by extending loans, so-called distressed inventory is starting to sell because banks are now in a better position to absorb greater losses and free up capacity on their balance sheets.
The Chinese are now the second largest foreign buyers of US homes behind Canadians, accounting for 11% of sales, up from 9% in the previous year. Data released by the National Association of Realtors showed that international sales reached $82.4 billion in 2012, up from $66.4 billion in 2011.
The industry is scrambling to court the new buyers. Some developers of new projects are installing wok kitchens, following feng shui principles and putting lucky numbers on choice units; others are packaging property sales with new government residency programs designed to encourage foreign investment.
In Los Angeles, New York and Miami, buyers mostly from China- some from Hong Kong, Singapore and Korea, are radically altering the landscape. Last month, a Chinese couple paid $34.5 million for a Versailles-style mansion on Sunset Boulevard in Beverly Hills, California. A year earlier, a Hong Kong businessman paid around $28 million for a nearby estate. Over the last six months in New York, several full-floor apartments in a new Manhattan high-rise called One57, each with a price tag of roughly $50 million, have gone into contract with Chinese buyers.
Another big spender was Fang Yi Liu, a businessman from Shanghai, snapping up 17 apartments for a total of $14 million in the Artech, a modern glass building resembling a cruise ship that overlooks the Intracoastal Waterway near Miami.
Los Angeles is enjoying its biggest influx of foreign capital for years. The state is the financial hub of the US West Coast, with Los Angeles already home to the highest number of foreign born billionaires and Fortune 500 company chief executives outside New York.
As uncertainty stifles global financial markets, real estate with strong rental prospects in key cities across the United States is again becoming an asset of choice for the yield hungry international property investor.