Chinese property buying spree raises alarm

When signs of world economic crisis began to show up, China was an exemplary business hub for western investors, especially from the US. Now, there seems to be a sort of role reversal as Chinese investors are flocking to the US, Canada and Australia, to buy properties. Chinese investors may be seeking to move money abroad amid abysmal look of the country’s economy and volatility of stock market.
But the buying spree has exceeded limits that caused a concern among Chinese officials. As a result, the government has started to clamp down on capital flight. President Xi Jinping earlier this year tightened the noose to prevent capital outflows, and the country has rules that Chinese citizens can move only $50,000 abroad annually, yet these norms are sometimes breached.
Apparently, the Chinese investors may be perturbed about the economic slump. This buying spree catapulted Chinese nationals to become the largest foreign buyers of US homes last year as they poured billions into American real estate, seeking safe offshore assets. A huge surge in Chinese buying of both residential and commercial real estate last year took their five-year investment total to more than $110 billion. In the US, they surpassed Canadians as the top foreign buyers of homes, with $28.6 billion of deals in the 12 months through March 2015.
Wonders never cease. After just 56 days of the year, Chinese companies have announced about $80 billion in outbound deals, over 63% of 2015’s entire annual volume. This windfall has helped the US real estate market to recover in a big way from the crash that began in 2006 and precipitated the 2008 economic crisis.
“Chinese companies are willing to overpay for something in the U.S., because they can grow that business domestically and have access to a market that’s able to support the valuation,” said Dan Clivner, M&A partner at Sidley Austin LLP. “They’re building blocks.”
This Chinese investment phenomenon also extended to other countries. Their investment has soared in countries such as Australia. The Chinese investors doubled purchases of commercial and residential real estate in Australia to $18.4 billion in the 12 months through June 2015, up from $12.4 billion a year earlier and A$5.9 billion in 2013.
In Vancouver — where the average home price has jumped almost 40 percent in five years — Chinese demand is concentrated in the luxury market. Chinese buyers this year purchased about three-quarters of the properties for sale in West Vancouver, where the average price of a detached home is C$3.1 million ($2.4 million).
Chinese buyers have proved they’re willing to pay high prices for U.S. targets — often outbidding domestic suitors — even as equity markets in both countries swing wildly. Chinese investors who pay significant premiums for
businesses look at long term broader picture.
Indeed, the cash flight from China to buy properties in the US, Canada and
Australia confirms China economy is slowing and may trigger global economic crisis.