Capturing Chinese Wealth: Why property is still number one for Chinese investors

Knight Frank’s Private Wealth Intelligence Unit in Beijing reports on why property is still number one for Chinese investors.

The last decade has seen a dramatic increase in the number of wealthy Chinese individuals. The number of people with US$50 million or more in investable assets has risen 96% in the five years since 2012, hitting 8,800 at the end of 2017.

While the drivers behind the increase are closely related to China’s huge economic growth, UHNWI attitudes are also evolving as the state of the Chinese economy, capital controls and other push factors shape the investment landscape. Here are four key factors that are influencing wealthy Chinese individuals in terms of their investment strategies.

Turbulence in the financial markets

The first half of 2018 has seen some turbulence in the Chinese financial markets, exacerbated by the ratcheting up of trade tensions with the US.

Not only have there been significant bond defaults in the debt markets, but also weak equity markets and a number of bankruptcies, most notably in the P2P sector. The gentle stimulus measures recently introduced by policymakers will likely favour property investment.

Education and emigration

While many wealthy Chinese people invest overseas in parallel to other business interests, two key drivers include education and emigration.

In higher education, the US, the UK and Australia are especially significant targets for Chinese students, with many parents looking at property investments in the cities where their children are studying. Emigration, similarly focused on Western markets, continues to be a major push factor for the purchase of overseas homes.

Varying levels of wealth and experience of other countries

While investors from each province and city have different preferences, broadly speaking the US, the UK and Australia still come top for education, lifestyle and emigration.

First-time investors, as well as those with smaller budgets, tend to favour countries that are somewhat closer to China, including Thailand, Japan and Vietnam.

After that, Chinese investors are increasingly considering a broader spectrum of destinations, with favoured countries including Dubai, European markets outside the UK, and New Zealand.

Capital controls

Despite significant appetite for overseas investment, capital controls continue to provide a challenge, with many successful purchases being funded by existing offshore capital.

The difficulty of getting capital out of China is certainly bottlenecking many potential investments and, while in the medium term controls are likely to be relaxed, for the time being the obstacles remain.