WHERE WILL CHINA'S RICH INVEST?

PLEASE READ "WHERE CHINA'S RICH ARE INVESTING", 15th NOVEMBER 2010, FOR LATEST ANALYSIS

When a Chinese entrepreneur bought a French vineyard last year it made headlines around the world. Did it mean those much-hyped, big-spending, Chinese property investors had finally arrived? Well, they are not exactly turning up in droves, but they have been spotted in one or two places like London and Dubai. It may be a trickle now, but this investment will turn into a torrent. You can bet on it.

When Beijing lifted its ban on Chinese businesses purchasing property overseas in 2007, this signalled capital controls on its private citizens would end eventually. While they wait, some mainland businessmen use companies to quietly funnel their money overseas, some of it into tax havens, hidden away from China's mandarins. Other Chinese invest in overseas property via Reits.

The potential purchasing power of Chinese investors is great and growing. China has 373,000 HNWIs and their numbers are expanding 14 per cent a year, faster than anywhere else in the world. When capital controls are lifted investment overseas will surge as pent-up demand is released. Property will feature highly in a Chinese HNWI's portfolio.

Modern China like Hong Kong, Russia and Britain is property-mad. Twenty years ago nobody living in a Chinese city owned their own home. Now 80 per cent of urban households are owner-occupied. Between 30-50 per cent of a typical Chinese HNWI's portfolio will be bricks and mortar estimates Catherine Tillotson, head of research at wealth management company, Scorpio Partnership. "Property is one of the first things they want to hold," she says, "because it is tangible and has fixed value, making it stable and secure."

Hong Kong's wealthy have invested in property outside the SAR for many years, especially in neighbouring Guangdong province. Singapore and Thailand are favoured, but Britain attracts most of their investment outside of Greater China, because of historical links and its open, stable economy. Other Anglo-Saxon countries are popular for similar reasons. Hong Kong investors are used to buying off-plan at home, and have few qualms about doing so overseas.

Foreign developers who spent the past 15 years targeting Hong Kong buyers will undoubtedly want to lure Chinese investors when Beijing allows them to venture abroad. They will enjoy some success, partly thanks to foreign education establishments.

Hundreds of thousands of Chinese students attend foreign universities and many of their parents would love to buy them a home in the country where they study. With 50,000 Chinese students Britain has the biggest potential market. Parents of the 9,000 Hong Kong students who come to Britain each year are already big customers of British developers.

Parents of children at Britain's public schools are another market. The scenario is similar in Australia, Canada and New Zealand, but the United States is making life tough - it has 42,000 mainlanders studying there, but parents who want to come over on home buying visits don't always get a visa.

When more Chinese parents get to splurge their children's accommodation budgets, many will buy in towns with universities specialising in sciences, the favourite subject of Chinese students. Britain, US, Switzerland and the eurozone will feature on investors' shopping lists - many Chinese HNWIs' have got rich from trade, so they understand doing business overseas and respect strong currencies.

High returns, ease of travel and cultural affinity mean the bulk of mainland investment will be within east Asia, especially Greater China, although Taiwan's restrictions on Chinese investors must end first. Most money will stay on the mainland. Naively, many Chinese investors consider the domestic property market "risk-free" following years of rapid price rises.

Wealth management companies are keen to "educate" Chinese HNWIs about the merits of other asset classes. Unless the recent 40 per cent fall in Shenzhen's residential property values spreads to the rest of China this may take some time.

We can expect Hong Kong HNWIs to ramp up their property investments as they get richer. Around 25 per cent of the SAR's residents have assets in excess of USD1 million today - the world's highest per head of population, and this will rise to 41 per cent by 2017 Barclays Bank forecasts.

To gain maximum face, super-wealthy mainlanders and SAR buyers will want trophy homes - Scottish castles, French chateaux, Kensington villas, New York penthouses, exotic private islands and more.

Holiday homes will be in vogue - even if hubby won't stop the deal making, the tai tai and children will want a break. Chinese businessmen love golf, so resort communities with 18-hole championship courses will be popular.

Design-orientated developers like Britain's Candy & Candy will attract Chinese customers when they hear that good layout and rich furnishing can add 60 per cent to a home's value.

Hong Kong and Chinese investors may hit the headlines again soon - French viniculture consultant, Joel Palous, has six SAR and mainland clients looking for vineyards in his home country. Clearly, new-found affluence has created a taste for fine wine and the properties where it is made. This is the tip of the iceberg.

PLEASE READ "WHERE CHINA'S RICH ARE INVESTING", 15th NOVEMBER 2010, FOR LATEST ANALYSIS

http://globalpropertynews.blogspot.com