Mainland binge on overseas property

Wealthy homebuyers eye bargains and pay in cash

Sandy Li and Peggy Sito
04 April 2010

Cashed-up mainlanders are on a multibillion-dollar binge of overseas luxury-home buying in the United States and Britain, where bargains abound, as well as in long-favoured destinations such as Canada and Australia.

Home prices in many struggling developed countries fell significantly during the global economic downturn. But China’s economy has been minting millionaires, and its relatively strong currency and soaring domestic housing market has sent rich mainland investors flooding overseas to get more for their money.

Property agents overseas say wealthy mainlanders out to take advantage of falling real estate prices are the perfect clients: they make decisions quickly, pay in cash, focus on high-end property and don’t ask for discounts.

Where all the money comes from and how it gets overseas – given the mainland’s strict currency controls – isn’t always clear. But the legal hurdles that exist for mainland buyers generally don’t concern overseas sellers, who are happy to take their cash and often ask no questions.

Many mainland buyers are entrepreneurs from major cities such as Shanghai and Beijing, but overseas estate agents say they are seeing more nouveaux riches from places such as Shaanxi province joining the rush to buy.

“These cashed-up mainland individuals are opportunistic investors,” Lee Hangyin, the director of research and advisory for East Asia at Colliers International, said.

In California, median home prices have plunged as much as 45 per cent from their peak in 2007, according to US property information provider DataQuick.

Property values in central London dropped 16.5 per cent from their peak in January 2008 to their trough in April 2009, according to the British Land Registry. Between April and January prices rebounded 13.4 per cent, it said.

“[Mainlanders] will seize the opportunity to take advantage of some great deals,” Lee said.

Mark Wong, senior real estate specialist at Alain Pinel Realtors, based in the city of Saratoga in California, said mainland buyers had become more active since the global financial crisis. “Prices have fallen a lot … and they think it is a good time to buy,” he said.

Buyers included speculators and the super-rich. Wong said he had seen groups of mainland buyers buying foreclosed homes, renovating them and reselling them in a few months.

But for the super-rich, it’s less an investment than an alternative to a hotel. “They usually stay in their houses just a few days every year,” he said. Recently, Wong sold a five-bedroom house to a mainland buyer from Chengdu for US$3.5 million, a record price in Cupertino – an expensive suburban city in Santa Clara county. “He flew here on a chartered flight after seeing the house on offer via the internet,” Wong said.

The Chengdu customer beat four competitors who also offered to buy the house. The reason?

“He paid cash,” Wong said. “Owners love selling homes to them [mainlanders] because it is fast and simple.

“I don’t know how he transferred the money to the US. I did not ask.”

Wong said he believed many mainland buyers have businesses that trade with US clients. Their US clients pay them in US dollars into their US accounts for the goods they buy on the mainland. They do not need to transfer money abroad, he said.

It’s a similar scene in central London, where spending by mainlanders on property recorded a sharp rise last year to £116.5 million (HK$1.38 billion) from a negligible amount in 2008, according to CB Richard Ellis.

The strong demand has prompted Candy & Candy, development manager and interior designer for the prestigious residential project One Hyde Park, to cater to mainland buyers when it relaunches this month.

Buyers in phase one were mainly American, British, Canadian or Russian. “Mainlanders will become major contributors in apartments in central London over the next 10 years as more millionaires and billionaires are created in China,” Nicholas Candy, the founder of Candy & Candy, said.

According to the Forbes list of the world’s wealthiest people, the number of US dollar billionaires on the mainland more than doubled to 64 last year, from 28 in 2008.

The combined net worth of the mainland’s billionaires surged to US$133.2 billion last year from US$43.8 billion in 2008.

There are currently 875,000 millionaires on the mainland, up 6.1 per cent from last year, according to the Hurun Report released on Thursday.

The report shows there are 875,000 people with more than 10 million yuan (HK$11.38 million) on the mainland. Beijing, home to 150,000 millionaires, has more rich people than anywhere else on the mainland. Guangdong was in second place with 145,000 and Shanghai came in third, with 122,000.

The growth has occurred against a background of strong economic performance in the mainland’s economy. Gross domestic product grew by 8.7 per cent in 2009 to 33.5 trillion yuan, and the Shanghai Composite Index rose over the same period from 2,300 to 3,000 points, an increase of 30 per cent. Meanwhile, property prices rose an average of 30 per cent last year.

Candy expects mainland buyers to account for 20 per cent of the purchasers of the 86-unit One Hyde Park, ranked in early 2008 as the world’s most expensive apartment block.

Of the £750 million in contracts that have been signed in the first phase, Candy said Hong Kong and mainland buyers accounted for 13 per cent of the total.

“The question for mainlanders is how they get money out from China, as we are not allowed to take cash directly from a purchaser. Buyers must wire the money to an appointed solicitor who would conduct a money laundering check,” he said. Sophisticated buyers would be able to meet those conditions.

Some mainland buyers purchase property to provide accommodation for their children when they study in Britain, Candy said. Others are lured by the investment opportunity offered by the strength of the yuan against the pound.

Jeremy Helsby, chief executive of Savills, said prime central London properties had historically been the main focus of overseas investment activity. Over the past year or so, London property has seemed good value to overseas buyers and this has triggered significant overseas investment buying.

“Chinese buyers became active in the market in early 2008, attracted by reports of falling prices and the low value of sterling,” he said. “Last year, they represented around 5 per cent of our market in the £4 million-plus price band,” he said.

Helsby said the majority of buyers were from Hong Kong but he had seen an increase in applicants from the mainland looking to buy in London, with a focus on the best addresses – including Belgravia, South Kensington, Chelsea and Westminster.

James Moss, the director of Curzon Property Consultants in London, said mainland buyers might get 10 to 20 individuals pulling together and collectively investing their maximum allowance of yuan.

“Syndication is very sophisticated over here and that would be a very good vehicle for individuals who only have a limited amount of money they can get out of China,” he said.

“We acquired quite a large house in Belgrave Square for a mainland Chinese buyer but the purchase was through a third-party vehicle. The house cost about £15 million.”

But the strong buying interest of mainlanders can be bad news for local residents looking to buy.

They’ve seen spiralling property prices go beyond the reach of average families.

Intensive buying in Australia caused controversy, with some local house hunters complaining they are being priced out of the market by foreigners who have no intention of living in their new properties.

“Prices were up 5 to 7 per cent from the end of last year and mainland buying is part of the reason,” Ray Chan, managing director of Sydney-based Henson Properties, said.

Mainlanders have replaced buyers from Hong Kong, Singapore and Indonesia as the company’s main clients in Sydney, Chan said. “I sold 20 apartments a month. Mainland Chinese accounted for more than 60 per cent,” he said.

The bulk of their purchases are apartments priced between A$400,000 (HK$2.86 million) and A$700,000 in the southern business district, he said. “They like floors 8, 3 and 2 [suggesting fortune and vigour],” Chan said.

“Buyers come from Beijing, Shanghai and Guangzhou. There are buyers from inland China like Shaanxi, but they prefer Perth, attracted by the city’s mining industry.”

Compared to Sydney, Perth is still a new market to mainland Chinese, he said.

Nick Johnstone, the director of estate agent JP Dixon in Melbourne, said mainlanders accounted for 20 per cent of the high-end luxury homes in the suburb of Brighton valued at A$3 million or more.

He has sold 50 houses price from A$1 million to A$15 million to mainland Chinese, from Shanghai and Beijing, who paid in cash.

“Six months ago, a mainland Chinese who could not speak English came to Melbourne and told us they wanted to buy a house today,” Johnstone said.

“We showed them five houses and they bought one valued at A$2 million at the end of the day. They buy homes like buying a pair of shoes.”

Australia is one of the favourite markets for mainlanders, Johnstone said. One reason is that the country has many quality schools, he said, and mainland parents buy houses there for their children.

Also, Australia and China are in a similar time zone, which appeals more to mainland buyers than buying in the United States and Britain.

Recently, Vancouver, Canada has also become a hot spot.

“We have seen a growing number of mainland couples aged between 30 and 40 years old come here to buy properties for investment purposes,” Robert Chen, a realtor at Regent Park Fairchild Realty in Vancouver, said.

Previously, sales were dominated by Chinese buying homes to accommodate their children while they studied in Vancouver.

To capture the mainland buying interest, Chen founded Regent Park Fairchild Realty in Vancouver, catering to the wealthy.

“Mainlanders own 60 per cent of the 100 most expensive houses in prestigious areas in Vancouver,” he said.

Chen said the BC of British Columbia now stands for “Bring Cash”, since mainlanders typically snap up properties in Vancouver with hard currency.

Prices for houses with net areas of 6,000 square feet in West Vancouver have risen 150 per cent to C$2.5 million (HK$19.19 million) now, up from C$1 million three years ago.

“Prices are rising due to the growing demand from the mainlanders,” he said.

Most of Chen’s clients come from major cities such as Shanghai, Beijing and even Dalian .

Chen said most of his clients buy a cheaper unit for around C$600,000 for their first investment to test the market.

“Then, one or two years later, they will aim at houses worth C$3.5 million,” he said. “They make very fast decisions and will not ask for a discount.”

Additional reporting by Naomi Rovnick

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