Real estate prices in many prime markets in the developed world have for years been boosted by demand from Chinese buyers. Many buyers were no doubt corrupt officials seeking to stash their ill-gotten gains overseas, but increasingly, it’s been the new upper-middle-class and wealthy Chinese -- beneficiaries of the country’s almost unparalleled growth in prosperity during the 21st century. Parents often buy condos for their kids in desirable neighborhoods in Vancouver, Los Angeles, and New York.
Chinese Outstrip All Other Foreign Buyers of U.S. Property
Source: National Association of Realtors
Now there’s a new twist to this process: the arrival of Chinese developers in the U.S. building massive projects catering to Chinese customers.
Big Chinese developers such as Greenland, Dalian Wanda, and Oceanwide have excellent brand recognition in China, and are aiming to attract a significant portion of buyers of their U.S. properties from among Chinese buyers. These projects span the U.S., in several big cities on both coasts. It’s not just residential; Chinese purchases of commercial property in the U.S. have grown from $1 billion in 2010 to a $6.7-billion-a-year pace in the first three quarters of 2015.
Greenland’s Metropolis project in downtown Los Angeles is helping revitalize the area with three condo towers and hotel space; other Chinese developers in the area are also building mixed condo, hotel, and retail. Greenland markets the development heavily in Shanghai.
Greenland USA’s Billion-Dollar Condo Project in Downtown Los Angeles
We believe that China’s continued transition to consumer-led growth will not be uneventful -- our favorite China analyst, Jonathan Anderson of Emerging Advisors Group, now believes that the Chinese authorities will not act to gradually deleverage the Chinese financial system, and that a financial crisis within China may well develop in about five years. However, five years is a long horizon. During that time, we believe that the arc of Chinese development will favor the continued growth and strengthening of the middle class and wealthy consumers in China.
That will have many implications for global markets. We’ve noted a few in our letters over the last several months -- many consumer-facing Chinese companies have strong tailwinds and good fundamentals, although they are currently still quite expensive. We also noted recently that we favor the Chinese travel industry in particular. However, the current trend of Chinese companies developing big properties outside China, and marketing them aggressively to Chinese buyers, suggests that the influence of rising Chinese wealth will influence markets well beyond China’s shores.
Investment implications: Chinese developers with name-brand recognition in China are beginning to develop properties in prime real estate markets outside China -- particularly residential, retail, and hotel properties in big U.S. cities. They’re marketing these developments aggressively to Chinese buyers, with busy sales offices in Chinese cities. To us, this is yet another indicator that, whatever stresses the Chinese financial system may ultimately experience, it is still “game on” for a strengthening Chinese consumer. If that consumer has the clout to acquire assets abroad, she also has clout to buy consumer goods at home.
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