Chinese Investors spending up big in NZ

[Chris W]

Saw this today http://deadline.com/2017/07/chinese-...ls-1202129913/

And so I wondered, why is China stopping money from flowing out?

Never really stopped to ask the question why?

Davo

China wants to keep its USD balance (aka FX reserves) at a certain level to maintain FX rate stability. The RMB / CNY is a managed exchange rate (managed by People's Bank of China aka PBOC (the Chinese Central Bank) to be within a certain exchange rate band), not free floating like USD, NZD, AUD, Euro, GBP. This supports the local currency RMB / CNY. If FX reserves get too low, then they don't have sufficient USD for every RMB 1.00 printed by the Central Bank of China in the monetary base, which leads to currency devaluation. Gold use to be the asset to support locally printed currencies (so that central banks don't print too much and people don't lose confidence in the local currency), but now central banks use the USD (hence the term reserve currency).

If you want an extreme case, look at Venezuela - insufficient FX reserves to import basic necessities, hyperinflation (as government prints local currency to pay its labour force such as military) and rapid currency depreciation.

[Bobsyouruncle]

China has an additional problem of being communist so every business person actively pushes money off shore as fast as they can to get it safe. So they have a never ending drain they are trying to plug. They have a whole industry of using peasants allowances for forex transfers to get money out.

[Chris W]

China has an additional problem of being communist so every business person actively pushes money off shore as fast as they can to get it safe. So they have a never ending drain they are trying to plug. They have a whole industry of using peasants allowances for forex transfers to get money out.

The capital leaving China started in February 2014, when the People's Bank of China suddenly changed the direction of the FX rate, which changed exchange rate expectations. Prior to this the general expectation in China was a strengthening FX rate, however in February 1994, they suddenly depreciated the exchange rate and this led to a major change in expectations. Imagine that you now believe / expect that the asset you own (RMB currency) is going to be worth a lower amount of USD, or some other foreign exchange currency, then you get out of it. Hence the capital leaving China. http://time.com/10020/chinas-currenc...world-markets/

It's the same with other assets - if a capital gains oriented investor believes that the value or price is going to increase with high probability, they will likely buy it (unless there are other overriding considerations,). If something happens such that the capital gain oriented investor now believes that the value or price is going to decrease with high probability, they will likely sell it (unless there are other overriding considerations,).

This is happening with residential real estate in Auckland where many owners of property have been buying for the purpose of capital gains. However for some investors, their future capital gain expectations are now slowly changing due to recent price change trends and many are taking a wait and see approach. Others are actively looking to sell - I saw someone make a comment the other day that they believed it was time to cash up.

[eri]

asian gov. control over rich citizens

is that they can simply lock them up and take away their money

so smart rich asians hedge risk by holding 50%? of their assets

in cleaner, reliable western democracies

even better if it's a possible bolthole, like a house

appreciates, like property

is useful to extended family studying abroad, like apartments

and may leave to the double-up power of an additional family passport

[Bobsyouruncle]

It's been going on for years actually.
"However, between 2005 and 2014 there was an almost 25% appreciation of the yuan to 6.14 yuan per dollar and yet capital flight accelerated from $125 billion in 2005 to $484 billion in 2014."

[Chris W]

Rental yields for Chinese buyers are low, so they buy in countries where rental yields are higher.


Plunging Chinese rental yields point to property bubbles in major cities

In Xiamen, the city most at risk of a bubble, investors can expect to wait 100 years to recover their initial investment through rent

Zheng YangpengTuesday, 18 Jul 2017, 7:52PM

Home rental yields in Chinese cities, which at certain levels can signify a property price bubble, continued to fall in the past quarter.
The yields in 13 cities slipped below 2 per cent, suggesting an accumulation of risk in the market.
The rental yields in all the first-tier cities – Beijing, Shanghai, Guangzhou and Shenzhen – dropped under 2 per cent, while nine second-tier cities joined them, according to Shanghai-based E-house China R&D Institute, which compiles the data for 50 cities.
The average yields are below the level in major global cities such as New York on 4.7 per cent and Tokyo on 4.3 per cent.
The coastal city of Xiamen recorded the lowest average rental yield of just 1 per cent, meaning investors can expect to wait 100 years to recover their initial investment if they solely rely on rent. Rental yield in Beijing touched 1.4 per cent, the lowest among the first-tier cities, meaning a property’s price is on average 71.4 times its annual rent.
The decline comes despite the fact home price growth has already tapered this year amid a succession of market-cooling measures introduced by local governments. Year-on-year new home price growth in Xiamen plunged to 14.7 per cent in June from 38.8 per cent in January, according to the National Bureau of Statistics, which ranks it as the city most prone to a property bubble.
Still, rent growth can’t seem to catch up with price advances.
“Rental yields in first-tier cities have continued to fall for over a year because policies have boosted the number of properties available for rent, which has pushed the average rent down,” said Lai Qin, an analyst with E-house China and one the report’s authors.
Most economists and analysts in China agree that the home price to household income ratio, a widely adopted international metric to gauge home affordability, is not useful in China where income tends to be underestimated and families often pool their incomes to buy homes for their children. Instead, the home price to rent ratio provides a more accurate gauge because it is location- and time-sensitive.


Qiu Baoxing, a former vice housing minister, contends that the home price to rent ratio is more effective in gauging asset bubbles than the home price to income ratio, as the latter reflects the long-term, macro trend. But when it comes to specific location and timing, the home price to rent ratio is more agile and useful.

For him, when the price is 30 times rent or higher, it becomes “dangerous”, he said at a recent forum. In Xiamen, the price is 100 times rent and in Shenzhen the multiple is 66.7 times.

The bubble is already bursting in some previously overheated cities amid stricter purchasing curbs and rising mortgage rates. In Yanjiao, a mega-community near Beijing, secondary home prices fell an average 30 per cent over three months ago, while primary home sale almost ground to a halt after speculative buyers flee the city.

http://www.scmp.com/business/china-business/article/2103116/plunging-chinese-rental-yields-point-property-bubbles-major

[WINZ]

I'm not sure if it's solely about domestic yields vs those abroad. There's likely a multitude of reasons, including re-risking ones personal wealth by transferring some of it abroad, fear of further de-valuation of the yuan etc.

It will be interesting to see what happens to the Chinese property markets now that their credit impulse is trending negative.

[Davo36]

Rental yields for Chinese buyers are low, so they buy in countries where rental yields are higher.

I agree, but the government here tells us they're a fraction of 3%.

That journalist will be sent to a re-education centre surely? Can't say there's a property bubble out loud in China can you?

Actually, just saw this bit:

Online it is:

Plunging Chinese rental yields point to property bubbles in major cities

And down the bottom it says:

This article appeared in the South China Morning Post print edition as:

Rental yield in 13 mainland cities slides below 2 per cent

[Davo36]

You know, I'm warming to China.

They have totally printed a bunch of money and gone on a worldwide spending spree. Driving up house prices in many places around the globe, including NZ, especially Auckland. But we let them do it, so it's our fault.

But having said all that, they are doing some really good things now. They have been trashing their environment for 30 years whilst they built their economy, but they are now taking big steps to reverse this. They are rehabilitating lots of bits of land, on very large scales. They are producing solar panels and other green products en masse. And so they are cleaning up their air, water etc.

They are even taking steps to curb their wildlife trafficking/destruction. They are in the early stages of this, but encouragingly, it's being driven by Chinese people, which is what needs to happen. They won't listen to outsiders, but will listen to their own people.

Here is a video I watched today: At 5:30 in, the president of DiDi (China's Uber) talks about how theyoung people are not saving anything, they spendeall their money on the latest iPhones, taking rides in DiDi cabs rather than the bus etc. And they do this because they feel they can never buy a property anyway, so why bother saving. Sound familiar?

http://video.vanityfair.com/watch/the-new-establishment-summit-the-truth-about-china

[chrisgoh]

You know, I'm warming to China.

Glad to know that.

Thanks for sharing the video, good stuff

[donna]

Interesting video. So China has no debt and over USD $4 Trillion in savings...however as Dave points out it's the older generations with the capital and the 'young' (not sure what age group maybe 18 to 25 yo) are spending probably cos they know they'll inherit their parent's $$ and most won't have siblings to fight with over the inheritance either. It will become tricky for the future generations if the 'spenders' actually never grow out of it and spend through their inheritance etc....will China then start taking on lots of debt?

cheers,

Donna

[Nick G]

China has a lot of debt. It's just distributed differently.

https://www.bloomberg.com/news/articles/2017-08-01/can-xi-jinping-defuse-china-s-debt-bomb

[Davo36]

China has a lot of debt. It's just distributed differently.

https://www.bloomberg.com/news/artic...na-s-debt-bomb

Yes I agree.

In the same series of videos, is this one: http://video.vanityfair.com/watch/th...global-economy

I found it fascinating. It's a couple of guys who short stocks and what have you for a living. They're sure China is going to blow up financially. So opposite to the guy above.

Donna, I think he said American people have no savings but Chinese people do. But then as Nick points out, Chinese companies owe a fortune.

Hard to know what the actual situation is.

[Nick G]

Japan is the same, massive savings rate, dead in the water government debt. Population imploding too so less people to help pay bak the debt.

If you visit Tokyo you will see a lot of green, the city has really come a long way since the boom in the 1980s.

[Viking]

China and India have a population problem. Because of their policy/religious dogma girl fetuses were aborted ensuring that there are more males than females. (Christchurch is the same. apparently 6000 more men the ladies there now.).

That's why you see so many Chinese men and Indian men moving around the world to new countries. Nature abhors a vacuum and shifts resources to fill the vacuum.
Not a new phenomenon by any means. It happened in places like the Shetlands where men went to sea and drowned leaving villages full of women and children.
In the days prior to the Crimean war the women would follow their men to battlegrounds. If the man got killed then the woman would find another to team up with. Self preservation. No Man, no money to live by.