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Chinese buyers invest for grandchildren

By Juwai, 24 October 2014
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What's the biggest misconception that real estate agents outside of China have about China's property market today? 

It's that the Chinese government is still doing everything it can to limit Chinese buyers from purchasing investment homes.

That was the image depicted in the news in 2013 and early 2014. By the middle of 2014, however, the situation reversed.

Today, the Chinese government is trying to encourage domestic buyers, within reason.

What changed? The property market changed. It went from "on the boil" to less than a "slow simmer".

 

They Worked!

The first thing China’s slower property market shows us is that the government regulations to curb the property market worked.

When property prices were increasing rapidly, the government had a legitimate fear that a bubble was brewing, and that one day, it would explode in their face.

A bursting bubble would have been bad for Chinese of every income level. A full 90% of Chinese own their own home, and a collapse in the property market would have made everyone feel much poorer.

After four years of tightening, the property market is slowing down. The government is wisely relaxing it's restrictions on ownership. Here are some of the tools that they used and – their service over – have now put back into their utility belt:

  • Regulating mortgage rates, so you pay a higher interest rates on loans for investment properties than for your first home.
  • Banning mortgages on third homes, so that fewer buyers can purchase more than two properties.
  • Requiring a higher cash down payment (60%) for second homes, compared to 30% for first homes. Some of China's biggest cities, with the fastest-growing prices, required down payments of 70% for second homes.
  • Limiting the number of homes you can own. 41 of the 46 cities that limited home ownership since 2010 no longer do so.

Today, Chinese are free to buy multiple houses in their own country. And, Chinese with the means tend to own multiple properties. That means real estate regulation at home is probably not the main reason Chinese buyers are in your marketplace.

Instead, the big driver of Chinese buyers is the opportunity. For the first time in history, Chinese buyers can own property in other countries and diversify their investments.

Until recent years, most Chinese could not invest overseas.

Culturally, Chinese are big believers in property as a long-term stable investment that builds and protects wealth for generations. Anyone investing with a timespan of generations is going to look for international diversification. That's especially true if they live in a country that is still in many ways developing.

 

Put This Knowledge to Use

Juwai.com customer Stephen Ivanusa, Director of Belle Property International (Australia) learned this important truth when attending the Juwai China Agent Summit in Beijing in October 2014.

“Everyone I spoke to was never going to sell either here in Australia or China,” he said. "The Chinese strategy is not about having a 5 per cent return; it’s about securing something for their family with a long-term outlook."

For agents selling to Chinese buyers, this means:

  • Chinese may be less price-sensitive, if they perceive the long-term value of an investment.
  • Chinese are not speculators. If you tell them how much they can make by reselling in a few years, you'll often be wasting your breath.
  • Emphasise major long-term developments in your area that will contribute to economic growth and stability – whether it's an expanding university, new transit infrastructure or population growth.
  • Focus on local educational institutions (from elementary to post-graduate) and lifestyle benefits of the area around your property. Many Chinese hope to use their investment property as a home for their children when they study, and perhaps also work, overseas.