Do you remember when you were a child and you played a game called Chinese whispers? Very often, the phrase or word that was passed down by someone was completely different from that which was originally said. Obviously, this has some hilarious side effects. And now, as adults, many economists in the Western world are playing their own version of Chinese whispers this time of year. In September, I recall some economist on the TV mentioning that Chinese investment in real estate was taking off. Shortly after that, homes in East London started to be snapped up faster than you can say “Really?”. Later, I read a related news piece. It said that an estate agent sparked a furor when he said that a third of all home buyers in London come from the People’s republic of China. Another estate agent was quoted as saying that one in three students at Eton College was Chinese.
I don’t know whether to laugh or cry at their stupidity. The actual number is less than 3%, but it is illiterate dimwits such as these that cause tension in the market. What happened most likely was that the real estate agent and the educator saw the number three and ran with it, making whatever of it that they wanted to. “Oooh, look there! Chinese investment! Bad, bad bad!”. Inaccuracies and idiocy aside, the fact of the matter is that there has been an explosion of wealth in China and now well to do Chinese property buyers are looking to overseas housing markets to make a mark. The numbers are astounding. Approximately 475,000 Chinese have assets that are worth $1 million or more than that. That means that in real terms, China has the fourth largest pool of high net-worth individuals (HNWIs) globally. If real estate agents needed more good news, they can find it in this one fact. Of all HNWI’s, an average of a fifth of their assets are kept in real estate.
The pure size of this class boggles the mind and sends economists, marketers and real estate agents into a tizzy, but it is a largely invisible class. Chinese investment is not as much as you might imagine. That’s because Beijing limits the flight of capital. Citizens are only allowed to send $50,000 out of the country each year, but the Chinese are an enterprising bunch. They always find ways to work around these capital controls. They stay under the radar so often in fact that it is hard to say how many buyers there are and how much has been spent. Most of this money is funneled through Hong Kong, designated a semi-autonomous Special Administrative Region (SAR) where Chinese citizens can pump their money in to their hearts desires.
Unsurprisingly, Chinese real estate investment in Hong Kong is phenomenally high. Many mainland investors are active here, and as a result the prices for super-luxury homes have doubled in the space of a year. Prices aren’t rising as fast in the luxury and mass markets thankfully, and that is perhaps down to the fact that a smaller percentage of these buyers are from the mainland. The Chinese investor has well and truly arrived, and they like to diversify their assets within a class they’re familiar with. Any prizes for guessing for that is? Be on your guard, the Chinese are coming.
