As China Cools Property Market, Buyers Go Overseas
“The Chinese are coming! The Chinese are coming!” Real-estate brokers and developers, particularly in Britain, have been sounding a much more welcoming note than Paul Revere, looking to mainland buyers to bail them out of their prolonged property slump.
But how significant is the impact of mainland Chinese buyers in overseas markets? Mainland Chinese buyers get a lot of attention and even credit for the boom in international property investment. But some brokers question whether they are really such a significant force.
Research put out by the brokerage Knight Frank last year showed that Asian buyers were accounting for 49.6% of the investment purchases in London over the last 12 months. Asian investors spent £761 million (US$1.2 billion) on property in the British capital, with a healthy mix of investors from Hong Kong and mainland China, as well as Singapore, Malaysia and other parts of Asia.
The impact from Chinese buyers sometimes gets overstated, however. Any Asian interest tends to get chalked up to mainland investors, wherever they may really call home.
“I challenge, personally, comments saying that 50 percent of central London property is being bought by mainland Chinese,” says James Talbot, the director of international sales for the United Kingdom and Europe at the brokerage Savills, noting he has heard such high proportions bandied around. “People see a certain surname, and assume. But of that 50%, probably no more than 5% or 10% is mainland Chinese.”
A closer look at the Knight Frank numbers backs that impression up – Chinese buyers were the largest single block buying London investment property, at 11 percent. But that includes buyers from Hong Kong, historically much more active in the British capital.
Investors from Britain’s former colonies in Asia have been much more active in markets like London, looking to snap up bargains in the wake of the financial crisis, brokers say. Still, mainland buyers are testing the waters overseas, despite rules that restrict them to taking no more than the equivalent of US$50,000 out of the country each year through legal channels.
“I think their interest is growing,” Talbot added. “But they are a very cautious market and one that does not have the cultural ties that Singapore, Hong Kong and Malaysia has had with the U.K.”
Anton Eilers, the Beijing-based executive director of residential real estate for Asia at CB Richard Ellis, says the financial crisis in fact disrupted a nascent trend for mainland buyers to look abroad. China’s property market went into a downturn in the second half of 2007, ahead of the financial crisis, encouraging them to test international waters.
“Many high net worth domestic investors had decided they would seriously consider to invest overseas,” he explained. “However, as they got comfortable with the idea of that, and decided to look at foreign markets further, the crisis hit. Then China introduced its [4 trillion yuan] stimulus package. So all their attention refocused on the domestic market.”
"Chinese buyers in particular are keen to spread their exposure and invest in markets they regard as more secure than their own if they can get through the regulatory minefield and release the funds."
Much of the stimulus money made its way into bank loans and then Chinese property. Their focus may now turn overseas again, with the mainland government intent on cooling the domestic property market. In January, it raised minimum downpayments to 60 percent on second homes. Shanghai and Chongqing in late January became the first Chinese cities to introduce property taxes.
Mainland property has also been on a very strong run. For 2010, Beijing was the top-performing major market, with primary residential property up 41.6 percent, according to Knight Frank and the mainland property tracker Holdways. Five cities saw their prices climb more than 20 percent, with big gains also in Guangzhou (up 26.5 percent), Hangzhou (24.9 percent), Wuhan (24.4 percent) and Shanghai (21.8 percent).
Those sorts of gains are disturbing Beijing. The likelihood of further regulatory steps to cool the market may encourage more Chinese buyers to diversify with international purchases.
“As Asian domestic markets show their own signs of difficulties, Chinese buyers in particular are keen to spread their exposure and invest in markets they regard as more secure than their own if they can get through the regulatory minefield and release the funds,” Liam Bailey, the head of residential research at Knight Frank said.
Most of the evidence of the involvement of Chinese buyers in markets such as London is anecdotal. But there’s no doubt that developers and construction companies have set their sights on Asia a key source of sales at a time Western buyers have retreated from the market.
Banks in Britain are reluctant to lend on luxury residential projects unless the developer has sold a substantial portion off-plan in Asia. “They want to have pre-commitments,” Eilers said. “They have to be comfortable that 40% to 50% of the project is being sold in Asia before they can get financing.”
British homebuilder Barratt Homes is looking east to find takers for its new homes. It says 30 percent of sales in its new developments go to Asian buyers. Mainland Chinese buyers haven’t been a focus in the past but are an “increasing presence,” sales director Gary Patrick wrote in an email, with Mandarin-speaking agents who can speak Mandarin and Cantonese in high demand.
Asian buyers snap up property overseas
Besides concern about their home property market, educational prospects are another key concern for Chinese buyers going overseas. Chinese, Indian and Pakistani nationals account for the largest growth among Asian students studying at British universities, a number that has grown 175 percent in the last decade. The number of Chinese studying in Britain rose from 4,017 in the 1998/99 year to 47,035 in 2008/09. So a British property is often seen as an investment in a child’s education, or as a potential retirement base.
The same trends explain the popularity of cities such as Vancouver, Sydney and Melbourne, cities that have proved popular with mainland Chinese for 15 or 20 years.
“The mainland Chinese have quite a strong track record with buying to Canada and Australia, both for education and immigration,” Piers Brunner, the CEO for Asia at Colliers International, said. The Dominion, a development in Darlinghurst, Sydney, sold well with Chinese buyers last year, for instance.
According to CBRE, 80 percent of the buyers of the Inmark Tower in Sydney are Asian, many of them Chinese. The development is in the heart of Sydney’s Chinatown, and 75 percent of the 217 apartments in the 35-floor building have been sold off plan.
Likewise, Rosedale Pavilions, a newly finished low-rise, 33-apartment block on Sydney’s North Shore, has also proved popular in China. Half of the apartments sold went to buyers from Asia. With expensive design and high-quality interiors and exteriors, “the developed impressed and attracted many Chinese investors,” CBRE says.
Although markets like London may attract Chinese buyers in the future, Eilers says they are for now favoring investments in the Asia Pacific region. The brokerage estimates that rich mainland Chinese buyers account for 20 percent of high-end property purchases in Singapore. In Hong Kong, 30 percent of sales of properties worth more than HK$50 million (US$6.4 million) go to mainland buyers, he believes, noting the city is typically the first choice for any wealth Chinese buyer.
Brokersaims to expand those horizons. Colliers has already promoted London property on the mainland and is beginning to market property in Canada and Australia, as well. It is also expanding the reach of its sales push. Having previously targeted Shanghai, mainland China’s most established and most expensive property market, it is moving into other first- and even second-tier Chinese cities.
“Now we’re asking if there is real appetite in Guangzhou, in Beijing, in Tianjin, in Hangzhou, in Chengdu, in Nanjing,” Brunner said. “We are just on the cusp of testing those markets, and seeing how deep is the market there.”