Over the last decade or so we have seen a massive increase in the amount of money invested in real estate by Chinese investors. It is difficult to pinpoint a market around the world which has not been influenced to some extent by Chinese real estate investors although there is no doubt that the US is the largest magnet. Anyone who follows the financial markets will be well aware of the turmoil on the Chinese stock market although this is anything from “a healthy correction” to a “full-blown crash” depending upon who you speak to.
However, it does seem that turmoil within the Chinese financial sector has pushed many to look towards the safe haven of US real estate.
Is Chinese investor demand really that strong?
Official figures show that Chinese investors acquired $28.6 billion worth of US real estate over the last 12 months. When you compare this to less than half that figure for the second most active buyers of US real estate, namely Canadian investors, this puts it into perspective. As the Chinese stock market will likely remain volatile for some time to come it seems inevitable that Chinese investors will continue to pour more and more money into the US real estate sector. Where will it all end?
While the likes of California and Texas remain top of the hit list for Chinese real estate investors there are signs that many are beginning to spread their wings. It would appear that Chinese real estate investors see the overall US real estate market as a “safe haven” and are now beginning to dig deeper, looking for the best value.
The attractions of real estate have always been the long-term potential for capital growth as well as rental income along the way. Historically these returns have not compared too favourably to worldwide stock markets but as we all know, in the aftermath of the 2008 crash, we’re not living in a traditional economic environment.
Governments around the world continue to fight austerity, budgets are still in deficit and countries continue to rack up record debts. Against this background it will certainly be a tricky few years for major stock markets although it would be a mistake to dismiss them outright. It is also worth noting that record low interest rates around the world have assisted those looking at debt funded property purchases. However, there are already signs that the UK Bank of England is looking at increasing UK base rates in the short to medium term which would have a significant impact upon mortgage markets and property investment.
Historically investors flee to so-called “safe havens” in light of difficulties on worldwide stock markets. The situation in China is difficult to say the least, with the stock market having a terrible time of late, and more investors seem to be looking at overseas property. The spectre of the Chinese government always hovers over investment markets amid concerns they may restrict overseas investment and in some way, shape or form look to introduce yet more artificial support for local investment markets.