Spurred by a domestic property debacle and a currency sell-off, Shanghai high-net-worth individuals hunt for overseas homes

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  • ‘Owning a flat abroad is a way of hedging risks now that home prices in Shanghai have dropped sharply,’ said a businessman keen on buying an Australian flat
  • LPS Shanghai luxury real estate show received over 6,000 visitors as 150 exhibitors from 50 countries showcased their property projects to potential Chinese buyers

High-net-worth individuals in Shanghai are seeking refuge in overseas property investments as they flee a slump in mainland China’s real estate sector, and this flight is creating price pressure in both markets.

In Shanghai, prices of lived-in homes fell sharply this year due to worries about the country’s economic prospects and a wave of defaults by major developers such as China Evergrande Group and Country Garden.

The queue of sellers is creating a supply glut. Homeowners now have to offer up to 20 per cent price cuts to lure potential buyers, according to You Liangzhou, the owner of Baonuo, a Shanghai-based property agency.

Meanwhile, the clamour for overseas assets is creating a different kind of pricing pressure in some overseas markets.

“More people are coming to New York than flats that are being built there,” said Thomas Guss, president of New York Residence, a real estate broker who was in Shanghai to attend a property fair at the weekend. “It creates upwards pressure [on home prices].”

More than 6,000 visitors attended the LPS Shanghai luxury real estate show over the weekend in Shanghai, with 150 exhibitors from 50 countries promoting their property projects to potential Chinese buyers. The fair also witnessed the signing of some preliminary purchase agreements.

On Saturday afternoon, hundreds of Chinese people flocked to the expo, chasing details about the prices, location and trend of overseas property markets from sales managers from the United States, Europe, the Middle East and Southeast Asia.

Property accounts for 59.1 per cent of urban mainland Chinese household’s total assets and 75.9 per cent of their liabilities, according to a central bank survey of 30,000 households in October 2019. That is 28.5 percentage points higher than assets owned by American families.

About 96 per cent of those surveyed owned at least one property, well above the US level of 63.7 per cent. About 31 per cent of them had two properties, while 10.5 per cent owned three or more.

“We do not aim to strike it rich with overseas property purchase,” said Wang Xiaoliang, an entrepreneur in Shanghai who plans to buy a flat in Australia for his daughter studying there. “Owning a flat abroad is a way of hedging risks now that home prices in Shanghai have dropped sharply.”

Wealthy mainlanders have developed a strong affinity for property as an investment class because of surging home prices recorded over the past two decades in top-tier cities like Shanghai and Beijing.

US real estate broker Guss added that rental income from New York-based flats was also on the rise, guaranteeing a handsome return for those who buy properties for investment purposes.

Since the start of this year, the Chinese yuan has weakened 6.2 per cent against the US dollar, resulting in an increased demand for dollar-denominated assets.

The yuan is still not convertible on the capital account, and mainland China citizens are not allowed to transfer money abroad freely for equity and property purchases.

Two executives with international property developers attending the LPS event, said many of the visitors were businesspeople who already had a global portfolio.

“We received good response from the visitors,” said Punya Mehra, a sales manager with Canvas Real Estate, a Dubai-based property advisory firm. “Chinese investors remain our biggest clients because they are actively looking to allocate their assets around the world.”

He added that some visitors had exhibited buying interest in the properties that Canvas Brokers is marketing, which start from about US$150,000 per unit.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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