For years, mainland shoppers have flocked to Hong Kong to spend their hard-earned cash on Rolex watches and Ferragamo shoes. Despite the global recession, some Chinese are now moving on from local short-hop shopping sprees to destinations farther afield. Purchases are getting larger too – measured more in square feet rather than shoe size. Wealthy Chinese now want to buy American real estate.
China’s once sizzling real estate market has taken a downward turn and the outlook remains grim. Although the government has released a series of stimulus measures to prop up demand, there is still an abundant supply of housing. According to the National Bureau of Statistics, the total floor area of the country’s unsold houses is 90.69 million square metres, an increase of over 30% from a year ago. Meanwhile, property prices have continued to fall. Many Chinese buyers are waiting on the sideline, anticipating prices will fall further.
Flushed with investment dollars, some investors are looking outside of China for real estate opportunities. According to the Shanghai Daily, over 100 Chinese buyers have gone on overseas house-hunting trips since late last year. The US is the most popular destination (but interest is also piqued by slumping prices in the UK and Australia).
These types of organised buying trips have garnered a large amount of publicity in China. According to trip organizer Soufun.com, also China’s largest property website, response has been so overwhelming that for an oversubscribed tour to the US next month, participants were selected based on their earning power. Most tour members are in the 35-50 age bracket, and are executives from real estate companies, business owners or senior managers at major corporations. Each is expected to pay about Rmb25,000 ($3,650) for the trip including airfare.
Vincent Mo, chairman of SouFun.com, reckons that most prospective mainland buyers are interested in two types of properties. The first is foreclosed homes, which are generally sold with big markdowns. The second type is residential properties in neighbourhoods that offer access to good schools and communities, which will see prices rebound when the economy recovers. Most of the properties shown will be priced at $300,000 to $800,000.
There is a certain irony to the situation; after all, some have blamed the Chinese for fuelling the subprime crisis, with their voluminous foreign exchange reserves. China’s elite is now flying to the US to buy up some of the same houses that their reserves once helped the Americans to purchase.
However, is putting money in the US housing market the wisest investment decision? Would it be better to keep the money at home? Although it is currently hard to justify a positive near term outlook, many experts remain strongly optimistic about the long-term prospects of China’s real estate market. Recent home sales data offer crumbs of comfort – housing sales were up in January for most major cities across the country, says Xinhua. Residential property transactions in 15 of the 35 cities surveyed were double those for December.
If larger numbers of Chinese do become the US’s newest landlords, Warren Buffett’s pre-crisis prophecy that profligate America would become a “sharecropper society” might yet prove accurate.
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