China shares plummet as overseas investment soars

Photo: Aaron T Goodman

China shares have plummeted today by more than 8 per cent , the largest one-day drop since 2007. The slump follows growing fears surrounding the country’s economy, as Chinese investors increasingly look overseas for real estate safe havens.

The Chinese stock market has been riding a roller coaster recently, with government efforts to avoid a crash following a drop last month proving to provide only short-term relief.

Capital outflow from the country, meanwhile, is rising. According to Robin Brooks at Goldman Sachs, outflows are estimated to be above $224 billion in the second quarter of 2015, “beyond anything seen historically”, he tells The Telegraph . Charles Dumas at Lombard Street Research pegs the outflow at a not insignificant $800 billion over the past year.

If fears of the Chinese economy slowing prove well-founded, it could cause negative ripples to spread, but may also encourage wealthy investors to continue investing their money overseas in search of a safe haven. Indeed, Andrew Taylor, Co-Chief Executive Officer of Juwai.com, tells OPP.Today that in the long run, if overseas investment increases, then so too will overseas investment in property – “to which high net worth individuals generally allocate 10 per cent to 15 per cent of their wealth”.

CBRE also highlights the high levels of outbound property investment from the mainland: it topped $10 billion last year and is expected to climb to $14 billion in 2015.

The consultants’ report, published by the SCMP , says that outbound investment has recorded a compound annual growth rate of around 72 per cent in the past four years, with investors looking to diversify domestic wealth, as well as achieve certain business and lifestyle goals.

JLL estimates that China spent $17 billion on commercial property overseas last year, up from $14 billion in 2013.

The most popular destinations for Chinese property investment are, unsurprisingly, the UK, USA and Australia. Indeed, Australia has increasingly rallied against the influx of foreign capital in its property market, as some fear that the growing force of Chinese money is contributing to rising property prices amid dwindling supply. Now, the country has introduced measures to clamp down on illegal investment in its real estate – non-domestic buyers are only allowed to purchase new build property – with threats of prison sentences and fines to culprits.

Tony Crabb, head of research at major real estate and research firm Savills Australia, tells News.com.au : “The Chinese are going to come here and buy the whole lot and they’re going to live there, just as the Russians and Saudis have done in Knightsbridge and Chelsea in London — that’s just the way it is all over the world.”

Indeed, there is a recurring pattern of wealthy investors diversifying assets in overseas property markets throughout history, regardless of economic ebbs and flows.

“The long-term [Chinese] picture is of a country with increasing wealth playing a greater role in international property markets,” Taylor adds. “Whatever happens in the course in the short term won’t change that.”

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