Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Foreign Investment in Chinese Real Estate?

admin by admin
January 2, 2013
in Uncategorized
0
0
SHARES
21
VIEWS
Share on FacebookShare on Twitter

New Investment Vehicles in China: Real Estate in 2013?

Written by Elliott Morss, Morss Global Finance

Introduction

In a recent piece, I described the evolution of investment opportunities in the US: real estate, savings accounts, stocks/bonds/mutual funds, pensions, insurance, and on to ETFs, hedge and private equity funds. What will happen is China? Will investment opportunities follow the same pattern or in some other? And are there going to be special vehicles developed in China?

I put these questions to Gregory Wang. Gregory has worked as an investment banker in both the US and China. After going to college in the US, he took assignments in both The Philippines and China. He then got an MBA from Columbia and returned to China as an investment banker. He is now the CEO of Newstar Investment, a family office representing Chinese investors that make investments in China and the U.S.

My questions/comments will be identified by EM and Gregory’s by GW.

EM: You have seen my characterization of how financial markets evolved in the West. Does it square with your sense of how they have evolved? And do you see the same pattern occurring in China, i.e., real estate, savings accounts, stocks/bonds/ mutual funds, pensions, insurance, ETFs…?

GW: Yes, I think financial markets globally will follow the US pattern, and China is no different in that sense. Stock markets are relatively new in China. Short sales are being contemplated and may soon be permitted, while new investment vehicles, like ETFs, are likely to follow. In real estate, the government is working to implement a property tax similar to what is done in the US. All of these new products/policies will be introduced in a manner tailored to China’s domestic market conditions and all will take time to implement.

EM: The Chinese household savings rate is very high, but my sense is that most people in China hold on to cash put some in banks and speculate primarily in real estate. To date, there has been very little penetration by stock brokers and other salesmen for stocks, bonds, mutual funds, etc. Am I right, and how do you see things developing over the next few years?

GW: The savings rate is very high and people do hold onto cash in the form of bank deposits. There are many reasons for this culturally. But also, what other choice do they have? The US financial markets have a plethora of products for investors. You can buy any sector, any risk profile, any liquidity, any hedge and spend $1 or $1 million. The options are endless. This is not the case in China. You can buy stocks or you can buy real estate. If you are a larger investor, you can buy fixed income products from a trust company or maybe invest in private equity. That’s about it. This will change slowly as China liberalizes the financial sector as more product and institutions evolve and more choices are offered as regulations allow.  Another aspect to take note of is the evolution of the Chinese investor. As China continues to grow, this investor now has more capital and a greater ability to understand financial investments (risk/reward).

EM: Do Chinese banks do much securitizing and selling off of their loans?

GW: Yes, but not so much to the public markets or to market investors. My understanding is that most of this business is done amongst banks and state companies. Banks are also state companies so I think you get the picture.

EM: As you know, US banks almost collapsed when the market for mortgage-backed real estate collapsed. European banks ran into the same problem when the market for Greek and other sovereign debt weakened. Certainly the Chinese banks have bad loans. Could something as severe as what happened in the US and Europe happen to Chinese banks or would the government keep it from happening?

GW: I don’t think Chinese banks are in any imminent danger of collapsing. Chinese banks are state companies so China will not allow any of them to become insolvent. The government is already the back-stop on insolvency.

EM: Real estate: I was in Shanghai about 10 years back when the real estate market was going straight up. How have things evolved since then? I can imagine that while growth has cooled in Shanghai, there, there are a number of other large Chinese cities where real estate is booming. Am I right? And if so, where is the growth most striking. One other question: Real estate cycles have been occurring for centuries and globally they are at or near the bottom. That, coupled with a growing global population should mean real estate should be a good investment for the next decade. Do you agree?

GW: Elliott, I can write a 10 pager on this one. Since my firm’s principal business is residential real estate, we are very close to this market. For the last 20 years, residential real estate has been booming. More than two years ago, the government implemented some very restrictive policies to cap real estate growth and price appreciation (i.e. limits on real estate purchases, down payment increases, loan restrictions, etc.). This impacted the market significantly and we saw frequent articles in the press about a real estate bubble burst. While this impact was felt across the country, real estate is a local market business and second and third tier markets were not as impacted as significantly as tier one cities like Shanghai, Beijing and especially Shenzhen. (This is also due to the fact that tier two markets were not as over-built as tier one.)  Fast forward to today, those restrictive policies are still in place. However, the market has stabilized in terms of pricing and sales. What we are seeing is that the industry is restructuring itself – that is, the smaller, speculative developers are being forced out of the business while larger developers are investing for the future through land acquisitions. Design and location (residential) are becoming even more important as people buy property to live in rather than as speculative investments.

This is an exciting time to be in the real estate business and we believe it remains one of the best investments in China. It is what I call a “backbone industry” in China supported by two key trends which no policies can contain. The first is a real natural demand for housing as China’s industrialization and urbanization continue (It is worthy to note that none of those restrictive policies implemented by the government target first time home buyers).  The second is a significant reliance on real estate to generate revenues for local governments through land sales. We don’t see this economic structure changing any time soon despite the currently contemplated real estate tax. If you consider these two simple social and economic factors alone, you can see that real estate in China will continue to be supported by the government and grow in the foreseeable future.

EM: Two questions:

  1. Will your firm develop investment vehicles for Westerners to invest in Chinese real estate?
  2. Will your firm develop investment vehicles for Chinese clients to invest in US real estate?

GW: We are trying to do both. It is harder for us to develop vehicles for Western investors to invest in Chinese real estate due to Chinese regulations. The real estate restrictions mentioned above now make it very difficult for foreigners to invest in residential or commercial real estate without approval from the government and these approvals are difficult to obtain. Furthermore, foreign exchange and remittance of capital is another hurdle that must be cleared. Any conversion of RMB into a foreign currency must be approved by the State Administration of Foreign Exchange (SAFE). Many foreign private equity real estate funds are now considering forming RMB funds for Chinese real estate investments. Some are targeting industrial real estate such as logistics. Probably the best way for individual investors to get into Chinese real estate companies is via public real estate companies listed on the Hong Kong exchange.

For Chinese clients to invest in US real estate, the primary obstacle is currency conversion, also regulated in China (i.e. no more than $50,000 per individual per year). However, for clients who already have funds outside of China, my family office provides investment opportunities in the US market. For example, we are currently investing in a boutique condo development in Boston which will generate some strong yields for our clients.

EM: I recently did a piece looking at US and China futures. So I want to ask you a few questions about how your view of China 10 years from now. Here is what I see: China is a resource poor country. Its rapid growth in the last 30 years was generated by exporting goods (with significant import content) to the West. Looking ahead, I see an emerging middle class that wants the goods that Western middle classes already have. And this includes autos. At the same time, China, unlike Russia and the US, is running out of coal. Putting this all together, I see China going from a huge trade surplus to a deficit.

GW: I am not an economist. But from what I have experienced on the ground, I don’t believe China will trend into a trade deficit scenario. Furthermore, I do not believe there will be a doomsday scenario of sharply lower growth followed by major implosions within China. I do think that China’s growth will slow over the next decade to less than 7%. And China does indeed have many structural problems. There are significant deficiencies in the financial system and a huge underground economy that is difficult to control. I also see a serious future problem caused by the country’s unsustainable pension and health care programs. However, I am confident the Chinese government will be able to manage the micro and macro challenges it will face in the future.

I believe that over the next ten years, China will be able to live with lower growth as it seeks greater stability.  Policies will be fine tuned to achieve this balance all with the intent of buying enough time to work out structural reforms and introduce market mechanisms.

Investment Implications

EM: Gregory believes there are great real estate investment opportunities in the second/third tier cities of China, and I see a meaningful recovery finally occurring in the US. What should a Western investor do?

China: Gregory suggests investing in publicly traded Honk Kong real estate companies. Another alternative is to invest in Guggenheim China Real Estate (TAO). 80+% of this ETF “indexes” on Hong Kong real estate companies. And at least some of their investments will be in second and third tier Chinese cities.

US: When Peter Lynch was running the Magellan Fund at Fidelity, he would buy “an industry“. Individual investors must be more selective. I favor high-yield US real estate investments (the dysfunctional US government could still imperil the US recovery so I at least want a good yield). ETFs worth considering include: KBW Premium Yield Equity REIT Portfolio (KBWY), Market Vector Mortgage REIT Income ETF (MORT), FTSE NAREIT Mortgage REITs Index Fund (REM), and IQ US Real Estate Small Cap ETF (ROOF).

For some time, I have been holding Fidelity Real Estate Income (FRIFX) and Brookfield Asset Management (BAM) as real estate plays.

I am not an investment adviser and nothing I say should be taken as a recommendation to buy or sell an asset.

Previous Post

Savings Impede Growth

Next Post

Fiscal Cliff Deal: Removed Support for Co-ops

Related Posts

Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers
Business

Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers

by John Wanguba
May 27, 2022
Microsoft Finally Joins The Virtual World, Unleashes New “Industrial Metaverse”
Business

Microsoft Finally Joins The Virtual World, Unleashes New “Industrial Metaverse”

by John Wanguba
May 26, 2022
Basketball Star “Kevin Durant” Files Patents For 26 New NFTs And Metaverse Apps
Business

Basketball Star “Kevin Durant” Files Patents For 26 New NFTs And Metaverse Apps

by John Wanguba
May 26, 2022
NFT Crowdfunding & Fractionalization Protocol Confti Unveiled
Business

NFT Crowdfunding & Fractionalization Protocol Confti Unveiled

by John Wanguba
May 26, 2022
eBay Unveils Sports-Themed NFT Collection
Business

eBay Unveils Sports-Themed NFT Collection

by John Wanguba
May 25, 2022
Next Post

Fiscal Cliff Deal: Removed Support for Co-ops

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business Coinbase crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi digital assets Elon Musk ETH Ethereum Ethereum blockchain finance funding government investment market analysis Metaverse mining NFT NFT marketplace NFTs nonfungible tokens nonfungible tokens (NFTs) price analysis regulation Russia social media technology Tesla the US Twitter

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Gap Cuts Profit Forecast As Inflation Drains Demand, Old Navy Staggers
  • Microsoft Finally Joins The Virtual World, Unleashes New “Industrial Metaverse”
  • Basketball Star “Kevin Durant” Files Patents For 26 New NFTs And Metaverse Apps

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish