Despite tighter capital controls, Chinese investors’ appetite for overseas assets shows no sign of slowing, according to a recent survey by FT Confidential Research.
The Chinese government introduced new measures in early-2016 to slow both legal and illegal capital flows. However, these controls appear to be acting as a speed bump rather than a roadblock, with more than two-thirds of the survey respondents indicating that, while it was now more difficult to get around the $50 000 (R0.71m) annual cap on individual foreign exchange, it was not impossible.
According to the survey, 82.4% of respondents indicated that they had already allocated more than 10% of their household investable assets abroad. Nonetheless, 56.8% of Chinese outbound investors plan to allocate more of their liquid wealth overseas during the next two years. This was particularly true for ultra-wealthy investors (individuals with liquid assets of over Rmb60m or R127m).
It appears that it is no longer only China’s ultra-wealthy who are investing overseas. The FT survey was expanded this year to include the country’s numerous “mass affluent” investors (individuals with Rmb600 000 to Rmb6m (R1.3m to R12.7m) in liquid wealth).
It appears that China’s “mass affluent” have already invested at least a quarter of their liquid assets offshore, as have wealthy investors, while the ultra-wealthy held an average of 19.3% in offshore assets.
Investors are eager to purchase overseas assets in order to protect their wealth against the effects of a slowing Chinese economy and a weakening renminbi. More than half of the survey respondents indicated that they expect the economy to slow further during the coming years, while slightly less than half believe that the currency – which has already weakened by 9% against the dollar during the past year – will continue to soften. Indeed, the top reason for investing overseas was the perceived need among investors to diversity risk.
Residential property remains the favourite asset among China’s outbound investors, with 71.6% saying they own residential property overseas.
Demand from Chinese homebuyers for properties to actually live in – rather than as an investment - appears to be growing. The primary reasons for buying an overseas property – according to 58.5% of the survey respondents – was to find a home for family members, mostly children studying overseas. By comparison, only 43.4% of the respondents indicated that they were buying housing overseas as an investment.
Respondents spent an average of Rmb3.9m (R8.3m) on their most recent property purchase, down from Rmb4.6m (R9.7m) a year ago.
The US was the top destination for home purchases, with 28.3% of respondents citing it as the country in which they had most recently purchased residential property. The US is also the leading destination for Chinese emigration and study. America was followed by Canada (22.6%) and Australia (20.8%).
There are signs that emerging markets are starting to gain favour among entry-level Chinese investors, with both Thailand and Malaysia identified as among the top ten destinations for home purchases.
Most outbound investors surveyed planned to increase their offshore investments during the next two years, with residential property remaining the number one draw. Commercial property appears to be attracting greater inflows.
The focus on the US is set to continue, with 64.3% of respondents planning to invest in the country in the coming two years, with Canada the second most popular at 38.1%, probably reflecting interest in real estate markets in Toronto and Vancouver.
Prepared by Sandra Gordon | Research and Market Analyst at Pam Golding Properties