Chinese Property Investments Abroad Set to Rebound
With the end of China’s zero-COVID border controls, Chinese interest in properties overseas, particularly in the Asia-Pacific region, is on the rise again.
Chinese investors, many of whom were constrained from investing overseas during the pandemic, are now actively looking abroad to deploy their pent-up cash.
With China’s economy and borders reopening this year, Chinese corporations are resuming trading activities overseas. As more companies look to expand production bases and deploy staff abroad, this could help lift Chinese demand for commercial and residential properties.
Meanwhile, more Chinese tourists are flocking abroad after being restricted from outbound travel for three years. Spooked by Beijing’s crackdown on the local real estate market, many could take the opportunity to add property-hunting to their travel itineraries as they look to geographically diversify their portfolios.
These investors’ top choices include Australia and Southeast Asia, which are popular locations for second homes, rental properties as well as college pads for Chinese students.
Diversifying Beyond the Home Market
Such offshore markets are looking increasingly attractive for Chinese households, many of whom remain cautious about their own home market’s prospects for recovery.
In March, the Chinese government reiterated its pledge to curb “disorderly expansion” of local developers, many of whom had been hit during a crackdown on high levels of debt and inflated prices in the property sector in late 2021.
In the first quarter of this year, domestic property investment declined 5.8 per cent, while property sales by floor area decreased 1.8 per cent. These declines are narrower than previous quarters, fuelling hopes that the beleaguered property sector will turn the corner soon.
Still, with the top Chinese leadership making clear that housing will be for living in, not for speculation, analysts say the real estate market is unlikely to see a repeat of the sharp price appreciation that made Chinese property such a hot asset in the decades prior to the pandemic.
Meanwhile, China’s stock market has been losing steam since April 18, when China released first-quarter GDP data that indicated its economic recovery was not as robust as hoped for. Over the next month to May 18, the Shanghai Composite Index and the Shenzhen Component Index fell 3 per cent and 6.5 per cent respectively as investors hedge their bets about China’s rebound this year.
More Financial Firepower
It comes as little surprise then that Chinese investors are looking abroad for new alternatives to deploy their cash pile.
Chinese households amassed US$2.6 trillion in deposits in 2022 amid dampened investment and consumption, and analysts expect a wave of “revenge spending” to help lift tourism, consumption and investments abroad. Individuals from China moved about US$150 billion overseas every year before the pandemic, and could invest even more than this in 2023 as they play catch-up after three years of lockdowns, Natixis chief economist Alicia Garcia Herreo told the Australian Property Journal.
These investors’ purchasing power abroad could also be buoyed if they are able to borrow more cheaply at home. Market expectations are rising that the People’s Bank of China (PBOC) could lower lending rates to stimulate economic growth. These bets have been fuelled by news that the PBOC reduced its medium-term lending facility by 10 basis points on May 12, marking the first rate cut since August last year. The central bank has also been guiding down bank deposit rates, creating more room for potential lending rate cuts.
Hot Asia-Pacific Markets
While Chinese investors are keen to diversify their portfolios, they are assessing their choices more carefully. Amid geopolitical tensions, some may be thinking harder about buying property in markets like the United States, where bans on Chinese real estate investment in states like Texas, Florida and Arkansas have been proposed.
Australia, whose ties with China have stabilised recently, is attracting more Chinese buyers. Chinese housing investments there could hit US$4.8 billion this year, doubling from 2022, predicted Asian real estate technology firm Juwai IQI.
Southeast Asia, which has been steadily deepening ties with China, is also seeing inflows. In Singapore, wealthy Chinese have become the top foreign buyers of luxury properties in recent years, contributing to a rise in the city-state’s property prices. In Thailand, Chinese individuals’ enquiries surged 107 per cent between the third and fourth quarters of 2022, a trend that continues to strengthen, according to Juwai.
Drawn to Southeast Asia
Southeast Asian markets are attractive to Chinese investors because they offer cultural similarities, the presence of significant Chinese population and close proximity to the mainland, said Mr. Winston Lee, PropertyGuru Group’s Director of Special Projects.
“These markets offer excellent opportunities with their stable political systems, strong growth prospects and attractive features such as quality education and healthcare systems,” he added.
With many Southeast Asian markets allowing freehold ownership of land and dwelling, more Chinese nationals feel more assured about investing in these assets for the longer term.
With their relatively stable political systems and strong growth prospects, these markets are excellent options for Chinese investors to consider as they venture abroad.
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