China's rich look abroad as home prices fall, others stay put

PUBLISHED JULY 21, 2014
China's rich look abroad as home prices fall, others stay put


[BEIJING] Rattled by falling home prices, some of the wealthiest Chinese are paring their property investments and turning to private equity or overseas holiday homes, a sign of fading hopes that the once red-hot market can bounce back any time soon. "Smart money" checking the exit is a bad omen for any market, especially one considered frothy after a five-year record-breaking bull run, but wealth managers, brokers and analysts say there is no reason for alarm yet.
First, the rich are not in a full retreat mode but rather looking to spread the risks more evenly, money managers say. "There are indeed clients choosing to reduce their exposure to the property sector, but it's not a common phenomenon," said an investment strategist at a private banking arm of a large state-owned bank. The banker declined to be named because he was not authorised to speak to the media.
Bankers also don't expect investors to simply dump their real estate because the market cools. "Unless someone has an especially big portion of their assets invested in property, he or she would not be in a hurry to sell," said Wang Jing, a deputy general manager at China Merchants Bank's private banking arm. "They would choose to rent their houses to deal with their cash-flow problems." Furthermore, millions of middle-class Chinese, not rich enough to invest abroad and frustrated by official limits on bank deposit rates that barely beat inflation continue to see buying a second or third home as the best investment.
Confronted with talk of more price cuts by developers to revive ebbing sales, those investors either hold on to cash and wait or focus more on megacities like Shanghai or Beijing and avoid smaller markets that struggle with oversupply.
MINORITY VIEW
"The choice of the rich is the view of a minority. We do not think it represents a trend for the masses in future," said Zhao Dazhen, a property analyst at CEBM Group, an investment research firm in Shanghai. "Market uncertainty is keeping most people on the sidelines. Potential buyers will be back once there are signs of a recovery." Data appear to confirm that analysis, with new yuan deposits nearly tripling in June to 3.8 trillion, the biggest jump in at least 12 months. The central bank's second-quarter consumer survey also showed property has not lost its appeal: 14 per cent of households said they wanted to buy a new home, roughly the same as a year ago.
By contrast, the rich, investment advisers at their side, increasingly choose to shift their money elsewhere in search for better returns rather than wait for prices to level off.
China's wealthy have dabbled in foreign real estate in the past and fears that the market has gone too are also not exactly new.
What is new is a growing sense that despite a pick-up in home sales volumes last month, the second monthly decline in prices in June might be the beginning of a longer slide.
Well-heeled investors are also shifting funds abroad faster than ever. Realtors in New York, Sydney or London all report how over the past year Chinese buyers became top foreign investors in their markets, snapping up high-end prestige properties.
Data from the National Association of Realtors, a US trade association, showed that the Chinese accounted for about 16 per cent of foreign home buyers in the United States in the year ending March 2014, up from 12 per cent in 2013 and 2012.
Compared with the size of the domestic property market - 8.1 trillion yuan (US$1.3 trillion) in sales last year - outflows are still relatively small and a central bank probe into an offshore investment scheme offered by one of China's major banks might curb investor appetite for foreign assets.
For optimists the limited scale of the foreign property investment and firm belief of many Chinese that a home remains the best store of value suggest that China's housing market is in a "natural correction" rather than on the brink of a slump.
STILL A BUY
Interviews with 10 would-be investors and property brokers in showrooms in Beijing, Shanghai and the southern city of Hangzhou convey that sense of confidence. "Of course I will buy houses for investment," says former investment industry professional Wu Linzhi, 52, while browsing house for sale ads at a real estate broker in Shanghai. "Investing in property is one of the best ways to preserve the value of your cash. This is especially true in China's biggest cities such as Shanghai." Whether China faces a severe property market supply overhang is hotly debated. According to one expert about 20 per cent of apartments in Chinese cities stand empty, but others say the figure is exaggerated. For one, it may include homes bought as financial investment where owners have no intention to move in or rent.
Central Bank Governor Zhou Xiaochuan recently admitted that policymakers are not sure themselves whether the property market is suffering from a supply glut or simply going through a soft patch caused by the slowing economy and financial stress.
For some well-heeled Chinese bad news is just another reason to call a realtor. "I used to buy some wealth management products but stopped immediately after hearing there was a default," said Yu Li, a 43-year-old catering business executive. "So I just put most of my money into the property market. You cannot save your extra money in banks. Banks themselves are in debt, would you dare to give your money to them?" - Reuters

Australia opens doors to rich Chinese
PUBLISHED: 22 JUL 2014 12:34:00 | UPDATED: 22 JUL 2014 16:39:52
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Australia opens doors to rich Chinese
Sunny Lu (right) and her partner (Kenneth King) are real estate agents who have been pivotal in connecting Chinese investors with infrastructure and property development in Melbourne. Photo: Mal Fairclough
NARAYANAN SOMASUNDARAM
Wealthy Chinese set course for Australia
Meet the Chinese billionaires with Australia in their sights
$5 million visas for Chinese rich could be invested in start-ups
Call him the Chinese millionaire hunter. Berrick Wilson is one of at least 30 fund managers who have jumped into the business of luring China’s wealthy to Australia using a new visa program that helps Chinese invest abroad.

Wilson has flown to China three times this year from the Melbourne headquarters of investment firm KordaMentha. He’s looking for millionaires to invest at least $5 million and qualify for residency, which gets around China’s restrictions on converting currency and sending it abroad.

“The interest is increasing by the day,” said Wilson, who planned to make his fourth trip this week to corral Chinese investors into the firm’s commercial real estate fund targeted at $US100 million ($94 million) and aiming for a 9 per cent annual return. Referrals in Shanghai, Beijing and Shenzhen have netted miners, property developers and agribusiness entrepreneurs, he said.

The flow of money into Australia could reach as much $10 billion a year, according to law firm Baker & McKenzie. More than 1,000 people, almost all from China, have applied so far, and more are expected after Canada cancelled a similar program in February amid a flood of applications. The number also may be boosted by a government review to hasten approvals. More than 60 funds have been started to capture the money, including by the largest banks in Australia.

‘IMPROVING THEIR LIFESTYLE’
“These are not your usual equity or private-equity type of investors,” said Bill Fuggle, a partner at Baker & McKenzie in Sydney who advises immigrants on the process and asset managers on compliance with visa rules. “Fund managers need to visit China and convince them of investing not just for a visa, but in turn to preserve their wealth and improve their lifestyle.”

Australia’s Significant Investor Visas (SIV), which are similar to US EB-5 visas that come with a $US500,000 investment minimum and a requirement to create jobs, are designed to attract overseas capital and eventually allow permanent residency in the country.

Immigrants are required to put the $5 million into government bonds or complying funds that invest in assets such as infrastructure, real estate and agribusiness, for four years, according to the Department of Immigration website. The initial visa requires residency of at least 40 days a year over the period, after which permanent residency can be granted.

The first 188 visa, so-called because the number eight in Chinese sounds similar to the word for making a fortune and is considered lucky, was awarded to an unidentified Chinese toymaker in 2013, according to the government. In May, the government announced a review to “reboot” the investor visa program and ease implementation.

VISA APPROVALS JUMP WITH COALITION
The pace of visa approvals has stepped up since the Liberal-National coalition government was elected in September, with 282 granted in the 12 months through June, compared with just four in the program’s first seven months.

Investment inflows from people with approved visas as well as those expected from 610 people on the waiting list totalled $4.5 billion as of June 30. About 39 per cent of that money went into managed funds as of March, according to data from the office of Michaelia Cash, assistant minister for immigration and border protection.

Chinese nationals accounted for 91 per cent of applications and 86 per cent of grantees as of the end of June, according to the minister’s office.

About 60 per cent of high-net-worth Chinese – those with at least 10 million yuan ($1.7 million) – have left China or are considering it, according to a Bain & Co report. More than half of such individuals without overseas investments planned to make them, while 60 per cent of those who have them planned to increase them, it said.

CLOSEST OPTION
“The rich feel it is time to hedge their bets,” said Fuggle. “The closest option for them is Australia, a country which enjoys a special and very long relationship with the Chinese populace.”

Wealthy immigrants can chose from offerings by private fund managers as well as banks: Westpac Banking Corp, Australia & New Zealand Banking Group, Macquarie Group, Commonwealth Bank of Australia and National Australia Bank. The inflows are “material,” said Fuggle, adding that the visa plan “opens up a new and unclaimed pool of money” that otherwise wouldn’t reach Australia.

“Every single visa applicant I’ve worked with so far has a lot more than $5 million to bring in,” he said. “I would say the average net wealth of the people willing to come in is $20 million plus.”

NAB, Australia’s largest lender by assets, offers more than 20 such funds for immigrants, ranging from equities to fixed- income. “To ignore the SIVs will be to ignore the financial opportunity the applicants are bringing into Australia,” said Prini Acharrie, a director in the lender’s private-wealth unit.

Commonwealth Bank has seven SIV funds, including two focused on property, according to its wealth-management unit Colonial First State’s website. Fees range from 0.4 per cent to 1.2 per cent, it said.

Westpac offers SIV Flexible Investment accounts with a range of options and dedicated bankers who speak Mandarin or Cantonese, according to its website.


Westpac’s ad promoting its SIV Flexible Investment Account
Westpac
“We are very pleased with the level of interest from our clients,” said Elissa Crowther-Pal, head of wealth services at Westpac subsidiary BT Financial Group Ltd., which handles the accounts.

ANZ offers the Opal fund as a complying investment product, while its wealth unit offers portfolio services that also comply, Victoria Kanevsky, a spokeswoman for the bank, said by phone.

“We expect that the SIV investment itself will represent a relatively small proportion of total foreign investment in Australia,” said Jason King, executive director at Macquarie’s specialist investments unit, which offers six such funds. “But the associated benefits from additional investments and ventures undertaken by successful applicants could be significant.”

China’s foreign-exchange rules cap the maximum amount of yuan that individuals can convert into other currencies every year at the equivalent of $US50,000 and ban them from transferring currency abroad directly.

This month, the Bank of China Ltdconfirmed the existence of a previously unannounced program allowing Chinese to send their currency overseas for purposes of emigration or residential home purchase. The bank said the transfers have been permitted by China’s regulators since 2011 as part of a trial program in southern Guangdong province.

NSW TAPS PROGRAM TO BUILD ROADS
The Chinese government has taken steps in recent years to allow freer movements of capital in and out of China. The goal of free convertibility of the yuan has been announced by policymakers since the 1990s, and is a step toward stated plans to make Shanghai a global financial capital by 2020.

Applicants for Australia’s program must be sponsored by one of the country’s eight provinces, which want to draw some of the foreign money into their own bonds.

New South Wales, which has nominated 400 applicants, requires successful foreigners to invest 30 per cent of their $5 million in state bonds, according to an e-mail from Ben Shine, a spokesman for Deputy Premier Andrew Stoner.

The money will help fund infrastructure including the North West Rail Link in Sydney and an upgrade of the Pacific Highway along the state’s coast, Shine said.

Investors are interested in property, including offices, hotels and resorts, as well as agribusiness and energy, according to Deloitte Touche Tohmatsu, which provides consulting advice for SIV applicants.

“The investments my clients are looking at range from agribusiness focused on high protein, meat products – lamb and beef – and soy, and clean energy, largely solar and wind,” said Catherine Chow, Deloitte’s Sydney-based partner for the Chinese Services Group.

While the purchase of a home in Australia doesn’t qualify as part of the $5 million investment, the visa applicants typically buy houses, too, Baker & McKenzie’s Fuggle said.

Chinese investment in Australian property climbed 42 per cent to $5.9 billion in the year ended June 2013, surpassing Americans as the biggest group of buyers, the Foreign Investment Review Board said in its latest annual report.

The government’s new attention to processing visas should encourage applicants looking for alternative destinations after Canada shut its door on a similar program, said Mark Wright, head of Deloitte’s immigration practice in Sydney.

CANADA TAKES A DIFFERENT APPROACH
Five months ago, Canada said it was ending its “backlog-ridden and inefficient” investor visas program, halting it while it had more than 65,000 pending applications, according to a February 11 statement from the country’s citizenship and immigration minister, Chris Alexander.

“Immigrant investors pay less in taxes than other economic immigrants, are less likely to stay in Canada over the medium- to-long term and often lack the skills, including official language proficiency, to integrate as well as other immigrants from the same countries,” the statement said.

Canada’s plan required a willingness to lend C$800,000 interest-free to one of the country’s provinces for five years, and a total net worth by applicants of C$US1.6 million.

“If Australia gets this right, it will clearly be a benefit for generations to come,” Deloitte’s Wright said. “Putting a stop to the Canadian program, if anything, has increased the level of interest for the Australian one.”

The anticipated $10 billion a year in Chinese immigrant investment, even when accompanied by additional purchases of residential property, is still small when compared with Australia’s $1.7 trillion pension sector, the fourth-largest in the world. Foreign investment in Australia totalled $135.7 billion in financial 2013.

KordaMentha hired more than 30 real estate and investment advisers in the past decade from Macquarie, Deutsche Bank AG and Lend Lease Group, and is now opening a China office, Wilson said. That investment, including Wilson’s trips to China, is paying off for the firm, which has managed more than A$US7 billion in property assets. Wilson declined to say how many Chinese investors he has found or how much they invested.

“Last year we spent a lot of time in Asia to understand the demand to fine-tune our offering,” he said. “We are reaping the benefits of all that.”

Bloomberg

Immigrants eye agribusiness
MAGGIE LU YUEYANG THE AUSTRALIAN JULY 26, 2014 12:00AM

WEALTHY immigrants under Australia’s significant investor visa (SIV) program are keen to diversify their investments in the country, with an increasing interest being shown in agriculture, Morgan Stanley Wealth Management vice-president Stephane Cooper told Data Room.

Morgan Stanley is among the banks that have tapped into this lucrative market since the government introduced the visa program late in 2012.

The bank has worked on 20 per cent of the 290 or so applicants approved so far.

There are about 1000 applications outstanding, and Mr Cooper expected to see an increase in the pipeline with a ripple effect from successful applicants.

“We are actually seeing families come in. The first person gets in, and then mum or dad might apply. We are now having families come through with us,” he said. “They will start with $5 million and as they become comfortable, after they spend time in Australia, they will start to diversify,” he said. “We know our clients are very keenly looking at agriculture, very keenly actually — looking to acquire businesses and looking to expand businesses as well.

“We have helped clients that have been interested in, say, dairy farms.”

Cooper said the clients were worth $15m-$20m on average, and were looking to invest more in Australia once they became comfortable with the business environment.

Morgan Stanley expects to see $300m invested through its program by the end of next month, with each applicant committed to investing at least $5m.

“First and foremost it is a safe haven, that is a priority,” he said.

The pace of visa approvals has accelerated since the Coalition came to power. Chinese nationals account for most of the bank’s clients, but it is also looking to other countries including India, Malaysia, Singapore and the UAE.

Hi GG,
Tried to search a thread, could be '' initiated '' by you , the title was 'SIV is a money laundering scheme ' or something similar , but to no avail.
Please advise how to search for this thread , may thanks in advance.

http://www.valuebuddies.com/thread-5402.html

(26-07-2014, 11:59 AM)cfa Wrote: Hi GG,
Tried to search a thread, could be '' initiated '' by you , the title was 'SIV is a money laundering scheme ' or something similar , but to no avail.
Please advise how to search for this thread , may thanks in advance.

Thanks GG.

China cracks down on money leaking out of its borders
DOW JONES AUGUST 15, 2014 11:45AM

China is trying to regain control of the cash flowing across its leaky borders and the effects will be felt around the world.

Beijing technically bans its citizens from buying overseas properties and stocks, and limits the money they can transfer abroad to US$50,000 a year. Despite these rules, wealthy Chinese have found ways to move their money across the border, making them the biggest international buyers of properties in places like the U.S. and fueling a boom in Macau's casinos.

Underground channels--such as the money-exchange shops found across Hong Kong -- have flourished in recent years. Some Chinese banks have quietly provided services to funnel customers' money across the border to boost their businesses.

"There seems to be a desire to tighten," said Oliver Barron, head of investment bank North Square Blue Oak's Beijing office. "The government is reacting to perceived outflows as Chinese businessmen want to get their money out."

The government has a lot of leaks to plug. These include longstanding strategies such as businesses over-invoicing their purchases or individuals using informal money-transfer networks. Other methods are more controversial, such as a Bank of China program that allowed clients to move large sums abroad. In the gambling center of Macau, the rich have used junkets, which lend them money in the former Portuguese territory and collect the debts back home. Less wealthy gamblers use their UnionPay cards, China's only domestic bank card, to make fake purchases, pocketing the cash.

China's gambling capital is among the first to feel the chill. Macau's casino revenue fell for a second straight month in July, dropping 3.6 per cent from a year earlier.

Grant Bowie, chief executive officer of MGM China Holdings -- MGM Resorts International's China venture -- said at a news conference this week that China's moves to strengthen capital controls represent "a significant policy shift" that has made Chinese visitors to Macau "more circumspect."

Both of the main channels for getting cash out in Macau are being squeezed. UnionPay said in March that its payment network has tightened checks on suspicious transactions in the territory to combat money laundering.

Junkets are facing pressure from casinos and regulators to disclose the names of their customers.

Other methods of moving money are also disappearing. Jewelry counters on casino floors, where gamblers could do a quick buy-and-return transaction and come away with cash, have recently been shut.

"These outlets were put on these prime real-estate locations for one reason--to drive the mass business," said Ben Lee, managing partner of IGamiX Management and Consulting, who advises casinos. "Moving them away should thus have an inverse relationship to the growth of business there."

The biggest global impact of the crackdown will be felt in real estate. Chinese buyers have buoyed property markets from Sydney to Vancouver to London. Given the high prices of the homes involved, the buyers are certainly moving more than US$50,000 out of the country.

One route favored by real-estate investors that has been shut down is a money-transfer service run by Bank of China Ltd. called You Hui Tong. Bank of China has said that it has received some regulatory approval for the service. China is also working on a deal with U.S. regulators that would force U.S. banks to disclose the assets of Chinese depositors.

The squeeze is already hitting Chinese developers working overseas, such as Country Garden Holdings Co. The developer has marketed some of the 10,000 units in a new waterfront land development in Danga Bay, Malaysia, to mainland buyers.

Country Garden's Malaysia project, its first international foray, was lauded as a success in its 2013 annual report, with contract sales of 7 billion yuan (US$1.13 billion). But this year, it has suffered from cancellations, mainly from Chinese buyers, according to people close to the matter. Some have cited difficulty in obtaining mortgages or moving funds offshore as one of the reasons for canceling.

The company said in an emailed response that You Hui Tong isn't the only overseas remittance method its Chinese buyers use. Although the impact of the closing of the service is limited, it does affect its marketing campaign, the company said.

The developer is now trying to attract buyers through discounts. It is also offering customers advice on how to get the cash needed to buy a unit out of China. During a recent visit to its sales office, about a 10-minute drive from Singapore, a saleswoman said that with the Bank of China channel closed for now, clients should look into underground money-exchange channels.

Some Chinese are using friends' and family members' transfer quotas to get the money they need over the border. But that practice has raised red flags too, with global banks increasingly scrutinizing money laundering.

For those who seek government approvals for big property purchases abroad, various regulatory bodies in China are asking detailed questions about where the money comes from and what they are buying with it, said Darren Xia, China director at real-estate firm Jones Lang LaSalle. "The government isn't turning the tap off," Mr. Xia said. "But they don't want it to get out of control."