6 Reasons Why Chinese Buy Properties Overseas

To this date, China still holds the record of having the highest population in the world with almost 1.4 billion residents. This anticipates greater demand on resources and consumer products than of less populated countries. Real Estate is no exception here. As a matter of fact, the Chinese real estate market is one of the world’s biggest, and even bigger if combined with Hong Kong’s.

Now, if you’re thinking that there is a shortage of livable spaces in China due to its rapid population growth, then you might want to think again.

In 2011, there are a little over 64 million empty properties and apartments in the country. The housing bubble that started back in 2005 culminated in a surplus of real estate units that greatly damaged their charts.

What Made Chinese Invest Overseas?

Despite all that’s happened, the Chinese remain to be one of the biggest spenders on real estate investments, especially in cross-border properties.

But why exactly do Chinese love buying properties outside their own country? Some even with no intention of occupying them. Does this have something to do with their culture or is it driven by their government policies?

Here are 5 reasons why most Chinese buy properties overseas:

1. Price Differences

Shanghai’s Bund: full of heritage and art deco architecture © DuKai photographer / Getty Images

From 2005 to 2009, the average pricing of properties in Mainland China have tripled. It was not until 2011 that prices started to crash. People believed that the reason behind the burst was due to the inability of middle-class earners to afford homes in major cities like Beijing and Shanghai.

In 2016, the average price of housing significantly rose by 12.4% y-o-y. However, we have seen a sharp slow down in 2017 with only 5.3% this time.

The Chinese real estate market can be described as saturated due to the decreasing interest of locals to invest nationally. In 2015 alone, more than $28 million was invested by Chinese buyers in the US for residential real estate. While in Australia, Chinese buyers were approved for AU$32 billion of commercial and residential real estate investment in 2015–2016.

It could be said that Chinese tend to look for a real estate investment opportunity in other countries where the value is worth the price. They are also keen to put in their money in emerging countries like the Philippines, Thailand, and Indonesia where lower base price and higher returns have been seen in the past decade.

2. Government Constraints

Most lands in China are owned by the state. Their property law asserts that people have the right to use, but not to own lands in the country. Normally, citizens are given the right to use a land up to 70 years for residential purposes and 40–50 years for commercial and industrial use.

To some Chinese, having just the “right” to own a property for a period of time is not the ideal investment. We are talking about Chinese with firm intentions of passing down their wealth to their future successors.

And while renewal of right-to-use is always possible, it is nowhere near as good as perpetual ownership. That said, Chinese are greatly charmed by countries with more lenient property laws like in France, Italy, and Australia.

3. Variety of Choices

Skyline aerial shot of eastern Beijing

China is a vast country. It’s in fact, the 4th biggest country in the world next to the US and Canada. The array of properties to choose from is undeniably wide but can still be too limiting for some Chinese investors. Reasons such as strict laws and regulations, limited types of properties, and stiff pricing are what force Chinese buyers to spurn their country’s offerings.

Furthermore, acquiring properties outside one’s own country is an effective way to diversify investment. Each country has different economic growth rate and influencing factors, hence varying yields or ROI.

This is not rocket science. There are plenty of options overseas that can fit the description of any property investor.

4. A Change of Environment

One of the most obvious reasons why Chinese buy properties overseas is that they have plans on leaving their country. It might be for any reason such as migrating, work, or studying abroad.

As nationalist as they are, Chinese fly to other countries for countless reasons. One of them is to change their environment for the better. The air pollution in major cities in China is a serious problem that they have been trying to fix for as long as anyone can remember. It’s so damaging that some schools are forced to be shut and farmers feared over the lack of sunlight. This is no secret to anyone who lives in China and they are very much aware of the harm it can cause them and their family.

For some, the standard of living is more of an issue than anything else. Families in the higher social group prefer to send their children to prestigious schools abroad. This is mainly to secure their children’s future, and in some cases, their own. Same can be said with professionals who opt to pursue their career in countries with better opportunities. Putting up a startup company, for example, in countries with lesser competition and more sturdy market could stand a higher chance of being successful.

5. Rental yields

Just like what has mentioned above, ROI’s vary per country. Properties in developing nations, for example, can give better yields than the ones in developed countries. It’s for the reason that prices are significantly cheaper and growth is more incremental.

In Southeast Asia alone, top-performing countries can give up to 8% yield compared to Shanghai’s 1.5% last 2017. The economic growth of a country is one of the biggest factors that dictate the returns of not just real estate investments, but investments in general.

These numbers attract many Chinese investors and property buyers to get their hands on their own property overseas.

6. Social Status

Fact:

There are more billionaires in China than in the USA, or any other country for that matter. With 819 recorded billionaires, China claims the highest spot on the list of countries with most billionaires. This is followed by the US, which has been topping the list for the past years, now with only 585.

A good image is such an important constituent of being in an Asian family. For Chinese, having a good social standing gives them a sense of achievement and a mentality of becoming more successful in the future. Owning several properties is one way to show they sit on a higher tier.

Unfortunately, the Chinese authority limits their citizens to actually own a land in China and could only go as far as having a right to use. This leads some Chinese investors to spread their wealth through purchasing properties overseas.

As a matter of fact, Chinese buyers are the fastest-growing segment of global property buyers. It is projected that by 2020, Chinese overseas property transactions will hit US$220 billion.

Conclusion

It’s fascinating how big and fast the Chinese global property market grows. China, at the moment, is the world’s largest international commercial real estate investor, just as it did in the residential sector in 2015.

This makes China truly one of the biggest contributors in the Global Real Estate industry and will be in the foreseeable future.