Friday, September 07, 2012

You'd be hedging too if you were a Chinese billionaire

Ill-gotten gains + giant real estate bubble in China + limited liquid investment options = windfall for top international cities such as Manhattan, LA and London.

If the RMB were allowed to float, the short term effect could easily be a decline relative to the dollar, as Chinese investors rush to diversify their portfolios.
NYTimes: ... The explosion of wealth in China has created myriad new billionaires eager to diversify their holdings with real estate investments in the United States. Often, they are looking to give their children a plush crash pad for boarding school or college, or a place to live in when they start careers and families. Many wealthy Chinese are also looking for places to invest where they can preserve their wealth and avoid the rising inflation in major Chinese cities like Shanghai and Beijing.

... The old way of doing business is no longer enough, Ms. Field said. “We as Americans always expected anyone to adapt to our business style, and they did,” she said. “That is no longer true with the Chinese. There are too many of them, they have too much power. We truly must adapt to their style of business in order to do deals.”

... Chinese billionaires continue to buy high-end properties in buildings like the Time Warner Center, 15 Central Park West and the newest, One57. But in May and June she saw something different: an “almost overwhelming volume” of calls and sales driven largely by interest in apartments ranging from $3 million to $6 million — what Ms. Lenz calls the “middle market” in Manhattan.

Chinese buyers are also no longer paying all cash as they were a few years ago. In recent months, several Chinese buyers have financed their purchases, some with United States-based loans, Ms. Lenz said. They seem to be leveraging in New York so they can also buy properties in Los Angeles, London or other cities, she said.

On her trips to China, Ms. Field has noticed a change in the conversation among potential clients. “When I first went over there five years ago, my presentations all had to be about return,” she said.

“Everyone was looking for returns. Two years ago, return questions almost dried up. Now it is all about wealth preservation. They are anticipating a bubble” in China, she added.

1 comment:

Richard Seiter said...

Is this going to be a replay of the late 1980's and early 1990's when Japanese companies (they got the publicity, were individuals involved as well?) were purchasing US property and companies? IIRC many of those investors lost a significant amount of money.

I have trouble reconciling the current movements of Chinese and American currencies, CPI, and interest rates (how do we have the RMB increasing relative to the dollar with CPI and interest rates lower in the US?). Can anyone with more economics knowledge offer any insights?

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