The return of the Chinese buyers

After Beijing put capital controls in place, the affluent Chinese disappeared from the world’s housing markets. A trade war could change that.

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Dhe long, light sandy beaches. The woods. The wine. This is Waiheke Island, half an hour by ferry from New Zealand’s economic center, the city of Auckland. Hippies once lived here, now the Chinese. For them, clean air and water on Waiheke are the epitome of paradise.

In the twenty years from 1990 to 2010, when the glass towers in Shanghai, 9,000 kilometers away, grew rapidly into the Chinese skies and with them China’s economy, house prices on Waiheke rose by around 600 percent.

In retrospect, real estate agents have clear words about what was going on in Waiheke’s housing market in 2016: “Dizzying” is one of them, “irrational” is another. It was the year one after China’s major stock market crisis, in which prices had fallen by a third in just one month. In which the currency renminbi, also known as the yuan, was devalued by 3 percent by Beijing’s central bank without much explanation, which prompted China’s rich to swiftly evacuate their capital. In 2016 alone, they invested 33 billion dollars abroad – an increase of around 50 percent compared to the previous year.

The money flowed here, for example, to Waiheke in New Zealand. The state, which in 2016 the Internet entrepreneur Jack Ma, the richest Chinese with a fortune of 26 billion dollars, wrote in his stud book during his visit that he too would like to buy a property here. Twenty of his friends, all in their 40s, have already done so.

Tighter capital controls

Today, however, prices on the island are stable. The average house price in Waiheke is 1.25 million New Zealand dollars, which corresponds to 726,000 euros and represents a tiny decrease compared to the same period last year.

After the supply on Waiheke was previously scarce, it is currently being sold again. The times when it was possible to see how much capital had flowed out of the country every month when the level of China’s currency reserves fell again are over. Chinese people who want to buy property abroad today have to invest a lot of money and effort after the government introduced strict capital controls and the value of the yuan has risen sharply again. From the low of under $ 3 trillion, the country’s currency reserves have risen well above the mark again. The industry website interest.co.nz observed that it took “very few months” in 2016 for the Chinese to disappear from the housing market in Waiheke and Auckland. Sales fell immediately.

The firewall that the Chinese government then built around its currency area had consequences for real estate markets around the world. In Australia, foreign property purchases, previously Chinese-driven, fell nearly 70 percent in a year after Beijing’s crackdown, roughly the same as the decline in total capital outflows from China over the period, according to a report by Pictet Wealth Management. In Los Angeles, America’s most popular city for the Chinese, buyers from the Far East also disappeared after Beijing’s capital controls were introduced after they had previously driven the market, a report by the broker Pacific Union found.