Why Chinese Love Crypto and Real Estate?
Two of the most popular asset classes for Chinese investors are Bitcoin and Real Estate. This is not surprising as both have been the better performing asset classes among the limited investment choices available in China. Unlike other asset classes, Bitcoin is not correlated to the Chinese economy and thus provides a good hedge to other local investments. Even with the corrections this year, its outsize cumulative return of more than 1,800% since the beginning of 2016 has convinced millions to invest in Bitcoin and mine Bitcoin in China (forbidden last year). Despite the ban on ICO and crypto exchanges, China remains the world’s largest holders and miner for Bitcoin with a market share of 60%-70%.
The international real estate has also become a popular asset class for Chinese to diversify their investment portfolio. Despite the tight control on capital, the National Association of Realtors (NAR) said that China remained the top buyer of US properties for the 4th straight year. Between April 2016 and March 2017, Chinese bought 40,572 (+39% YoY) residential units totaling US$31.7 billion (+16% YoY). The NAR also reported that 65% of these buyers paid cash to buy their properties while only 26% used US mortgage loans, and suburban single-family homes remain the most popular among Chinese buyers. This is not a surprise as Chinese buyers who live in high rise condos in China want a US home with a backyard and close to good schools.
At more than $1000 per square foot, the average house price in Beijing today is already on par with some of the most expensive counties in the US. Unlike the polluted air and apartment living in Beijing, the US offers better air quality, better schools district and better access to the some of the best healthcare facilities in the world. This has led to the US becoming the most popular destination for home purchases by Chinese in recent years.
Chinese homebuyers have also been frustrated by the US$50,000 capital control imposed on each citizen. While the rise of bitcoins has allowed some Chinese to use cryptocurrency to buy their dream homes overseas, the recent ban of crypto-currency trading by the Chinese government has dampened the enthusiasm. Those Chinese incvestors, who have foreign presence and may claim that cryptocurrencies were gained beyond China, are sending the requests to buy properties overseas with cryptocurrency or they do a family purchase of cheaper properties ($100–200k) in less expensive US and European locations.
Propy is positioned to help Chinese investors who want to buy properties overseas and diversify part of their crypto-investments. Today, more than half of the property search on the company website comes from China. Despite the capital control, inquiries for overseas properties remain strong. This is expected to rise further as the company’s property listings start appearing on other Chinese media such as Sina and WeChat.
So how do Chinese choose their overseas dream homes?
Many Chinese already have made up their minds about which countries and cities they want to buy their overseas homes. In the US, New York City, LA and the Bay Area remain the most popular because of its cosmopolitan and diverse demographics, great schools and large Asian community. Other cities like Seattle, Chicago, Boston, Denver, and Miami have become attractive as they offer better value, lifestyle and vacation homes. Since immigration and education are among the top criteria for Chinese families, the United States is still the most favored destination.
Just like Americans, Chinese buyers also do research about the neighborhood, schools and the property they are interested to buy. Aside from online information such as social media and real estate websites, many Chinese who speak little English rely heavily on relatives and friends for recommendations. What this leads to is Chinese buying properties in the same neighborhood as their relatives and friends, creating a mini-community. To capitalize on Chinese overseas home purchase, many Chinese developers are also venturing abroad to build gated communities for Chinese who want the convenience of homes in foreign soil.
How does Propy help to Chinese investors?
Propy’s platform is a one-stop shop for real estate. Here is the Propy experience for the property investor: https://www.youtube.com/watch?v=Sjn2h68dNsc. #Propy has developed smart contracts on top of Ethereum blockchain, which comply with US laws and allow foreign and local cash buyers to purchase and pay for the properties online. With Propy’s smart contracts, buyers and sellers can use either fiat currencies or bitcoin or ether to complete the payment. The digital decentralized land registry built by Propy will allow for the transfer of title deeds on the blockchain from the sellers to the buyers, while the transfer is still recorded with the local authorities. The recording of the deed on the blockchain in Vermont is a good example, here is an article on Inman. This record is immutable and will establish an additional proof of record of property ownership forever. Chinese buyers who are not familiar with local laws and practices, and who speak or read little English, can feel assured that they have every step of the transaction recorded on blockchain and will recieve services in Chinese language on Propy in the future.
The advantages of blockchain are greater transparency which will be able to prevent fraud, make transactions faster and access to all the documents anytime with one’s private key.
In conclusion, even with the torrid growth in overseas home ownership, China is ranked only 18th in the world by aggregate ownership of the foreign real estate, suggesting that the recent boom in foreign buying is not likely to slow. This is why the Chinese investor is the target for Propy and soon we will be able to share more information on correlation between crypto and real estate investors.
For more information on Propy and blockchain in real estate, please visit our website www.propy.com.
Written by John Wong, VP for China at Propy
We thank our advisor Dovey Wan (Danhua Capital) for the contribution
