China and the United States are at odds about many things. It is undeniable that there is a rivalry bordering on enmity between the two countries. But ever since the visit of Deng Xiaoping to America in 1979 the Chinese have had a fascination with the only remaining superpower. So much so that many decided to make it their home.
Real estate is a favorite investment for Chinese, but not at home anymore
Chinese love real estate. It is seen as a safe investment and many Chinese see it as a good retirement plan in a country where state-provided welfare does not exist. But recently they have proven more eager to purchase abroad rather than at home. Here is why.
Today, real estate is at a turning point in China. It is becoming increasingly clear that there is a property bubble. Prices are much higher than they should be and the market could plunge dramatically in the coming years.
Additionally, there are concerns around the 70 year policy and how this is going to play out. This particular regulation states that all the land (upon which houses are built) belongs to the government; so basically every home “owner” has only a lease on the land. Feeding this uncertainty are reports of cases where the state has asked for one third of the sales value to renew the land lease once it has expired. Even if the lease does not expire during their lifetime, many Chinese are afraid they might not be able to pass on their property to their children.
And this has them looking to make their investments elsewhere.
Why the United States?
The Chinese have invested over 150 billion dollars in real estate in the US in five years. That is a huge amount, especially as it excludes some company and pension funds. There is a tendency for Chinese to buy in big cities such as New York as they appear to be more reliable as an investment.
There are many Chinese in America with the Chinese diaspora estimated to be just short of 4 million. The Chinese contribution plays an important part in American culture and the many ‘Chinatowns’ around the country pays testament to that.
The fascination of Chinese toward America surely plays a role in attracting the Chinese, but the driving force is that it is a democracy. In a democracy there are property laws that protect owners from being dispossessed of their house, ensuring they will be able to pass it along to their children later on.
Recently Beijing tried to reduce the huge cash flow from leaving the Middle Kingdom, preferring to see all this cash invested in the domestic market to boost the Chinese economy. They have cracked down on banks overlooking local laws on restrictions to currency exchanges, making it more difficult for Chinese to raise capital.
This kind of protectionism raises the question of reciprocity. Indeed, foreigners are at the moment much more limited on the purchases they can make in China and what they have the right to invest into.