At the end of February, 40 wealthy Chinese embarked on a housing tour of the US. The trip, run by Soufun Holdings, one of China’s largest real estate companies, kicked off in Boston and continued on to San Francisco, Los Angeles and New York. For a fee of US$3,600 apiece, tour group members perused homes in the US$500,000 to US$1 million range.
The trip was so popular that Soufun had to turn away 400 applicants.
"Every day people are calling about it," said Zhao Xinyu, public relations manager at Soufun’s Beijing office. Based on customer demand, Soufun may expand such trips to include Australia, the UK and Japan.
The popularity of Soufun’s trip has led to speculation that this might signal a new trend in Chinese spending habits, with individuals looking to store more of their wealth overseas.
Bricks and mortar
According to the Asia-Pacific Wealth Report 2008 by Merrill Lynch and Capgemini, a consultancy, wealthy Chinese investors have traditionally held a high proportion of their assets in real estate. In 2007, a year that saw investors diversify into other assets against the backdrop of a booming stock market, high net-worth individuals in China allocated 21% of their assets to real estate, against a global average of 14%.
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."