The past few weeks have been pretty chaotic for wealthy Chinese in the Shanghai stock market, thus pushing them to diversify their investments. The latest drop makes Chinese investors wonder about backing out of their US real estate contracts and recouping losses on the Chinese stock. They consider dropping their initial investments even though it can be up to $1M. It represents nothing as compared to what they have potentially lost on the stock market.
Meanwhile, within a week, the Shanghai Composite has had a short and unstable rise, while the yuan has devalued by 3.2%… it actually leaves investors hopeful. After a closer look, clients can eventually decide to close deals in the US!
With these uneven stock movements, this Chinese audience – who belongs to a group of wealthy Chinese – is caught in between a rock and a hard place: they are left thinking about whether they should leave their assets in China to possibly avoid market volatility and devaluations of the RMB or invest in a growingly expensive real estate in the US. As a lot of these wealthy Chinese have been hit heavily by the equity market, it is a good excuse to make them diversify assets out of China.
The drop in the Shanghai Stock Market would potentially increase the rate of real estate sales in the US from Chinese buyers. For those who want to invest overseas, the purchase of a US property looks like a moderately risked investment that comes with high return. Even more so when anticipating yuan devaluation. Believe it or not, Chinese people are actually the largest group of foreign buyers in the US in terms of real estate. They bought 16% of the inventory of condominiums and single homes in 2014, before Canadians. Moreover, the products they buy are generally among the most expensive properties, with an average of $831,800 per sale, whereas domestic buyers usually purchase below $350,000.
As brokers in Miami, we start feeling an urgency among Chinese clients, wanting to put some money in the US before a further devaluation of the RMB. There is an insecurity about both their economy and politics and the US real estate looks less like a bubble than the one in China. It appears like a safer heaven. Knowing that many of China’s wealthy have close ties to political figures, staying away from that scrutiny by investing abroad sounds like a good idea and a great way to diversify holdings. For example, the sales team of Paramount Miami shared with us the fact that Chinese buyers were very interested in the project and are starting to pull the trigger. They used to be more reflecting on it before the devaluation.
Even the Chinese government actively encourages Chinese citizens to buy abroad with an allowance of converting $50,000 into another currency every year. Better yet, the Qualified Domestic Individual Investor program just got launched as an overseas-investment scheme to enable Chinese individuals to purchase overseas directly. They need a minimum of $160,000 in financial assets to qualify. As a conclusion, Chinese buyers will now start to seek more investment properties than homes, in higher-tier neighborhoods.