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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Wealthy Chinese Are Desperate to Buy Your Vacation Home

Housing-Market / US Housing Sep 28, 2010 - 07:52 AM GMT

By: DailyWealth

Housing-Market

Tom Dyson writes: My friend is visiting from Shanghai. Last night, he told us some incredible stories about the crazy rise in real estate prices in China...

Take his parents, for example. They live in Qingdao, a fast-growing city on the east coast between Shanghai and Beijing. His parents bought a house on the beach seven years ago. It's gone up six times in value since they bought it and is now worth over $1 million.


My friend works at a Shanghai mutual fund company. He says his coworkers have all made fortunes buying property in Shanghai. One colleague bought an apartment "way out" in the suburbs where there's no subway. Its value has almost tripled in 18 months.

I asked him why people are so desperate to own property. He says China is gripped by a genuine inflation scare right now. People don't want to hold cash. The rich convert their money into foreign currency and move it offshore. Everyone else buys property.

In April, the Chinese government introduced new laws to prevent property speculation. There's a new sales tax on property held for less than five years, for example. A minimum 40% down payment is another. The idea was to put the brakes on the property market and kill the inflation fears. At the time, people thought these rules would cause buying to dry up and the property market would crash.

"They didn't even slow the market down," said my friend. "My apartment has gained 30% since April."

Here's the thing: While the Chinese property market soars, the U.S. property market is stuck in a bog. Last week, the Commerce Department announced that house prices had fallen to new six-year lows in August. New home sales are at the lowest levels since the government began collecting data in 1963.

The Chinese have noticed how cheap American property is... and instead of plowing their money into expensive properties in China, they're eager to get their money into American real estate. Everyone is afraid the Chinese government will do something stupid to get a handle on inflation, like causing the real estate market to collapse. Cheap U.S. real estate is the perfect solution...

Take my friend's parents... They plan to sell their house in Qingdao and use the proceeds to buy two houses in Fort Lauderdale. They'll live in one house and generate retirement income by renting out the other house. This way, they'll have a great retirement in Florida. And the rental house will keep them busy and provide an income. Most importantly, they'll get their money out of China.

My friend says this trend is going to grow into massive proportions over the next few years. To capitalize on it, he plans to set up a consultancy business helping Chinese invest in South Florida. He'll show them properties, handle the taxes and paperwork, and help them find tenants if they need income. In return, he'll earn commissions and fees.

Florida has beautiful beaches, great golf courses, no state tax, and near-perfect weather. Above all, it's an easy way for foreigners to get capital out of their home countries. It's not just the Chinese who are eager to buy... Rich Venezuelans and Colombians love Miami. So do wealthy Europeans. Snow birds from Canada and the Midwest love Naples. The Brits love Orlando.

This safe-haven status puts a floor under Florida property prices. And the coming Chinese interest is just another reason for buying deeply discounted Florida property.

While I don't expect prices to rise for a few years, there's almost no downside risk to Florida property at current prices.

Consider taking a trip to Miami or Naples and touring a few beachfront houses. If you ever wanted to buy your dream retirement home... or start a new career as a landlord... you can't go wrong in Florida right now.

Good investing,

Tom

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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Comments

Wags
28 Sep 10, 10:23
Interesting

One small oversight in this report is the incredibly stringent capital control that is enforce in China.

While it is true that people are desperate not to be caught with cash, most of that money will never migrate back to buy American housing. Not unless those capital control laws change. This is another big consideration for those eyeing the gold markets: the increasing sums of private Chinese cash only have a few avenues of use and everyone here knows the property sector is well overheated.


Shelby Moore
28 Sep 10, 19:17
Yuan peg

I am trying to understand the mechanisms that keep capital within China from escaping to greener pastures, thus causing bubbles in real estate and for-export factories.

1. China's central bank controls all foreign exchange of Yuan.

2. While citizens are free to travel abroad, most countries where they would find undervalued investment opportunities, will either not give visas to non-wealthy Chinese (e.g. USA and Europe), or do not allow foreign business and land ownership (e.g. Philippines, Thailand, India, etc). Vancouver and Hong Kong have so many Chinese immigrants and real estate bubbles because they encouraged Chinese immigration.

3. Although Chinese can buy gold domestically, the price over spot is excessive and there are probably restrictions or taxes to be paid if it is exported.

So when the western countries say they want the Yuan peg to end, they are lying because if they really wanted it, they could just encourage Chinese visitor visas for tourism and investment purposes (no need to give politically sensitive immigrant visas).

However, this presents an enormous business opportunity to those market makers who want to provide a way for Chinese exporters to get paid in local Yuan that wants to get exported. The foreign importers then provide the exported foreign exchange. This could be run on the internet. However, you could expect the world's govts to shutdown any such thing.


Shelby Moore
03 Oct 10, 02:20
west wants yuan peg

Important to cross-reference the discussion that started in comments above, to the extensive continuing discussion at another page that gets precisely into the Yuan peg and the suggestion that this article above made about Chinese preparing to buy real estate in Florida:

http://www.marketoracle.co.uk/Article23142.html#comment95152

You can highlight the above link with your mouse, then Copy + Paste to your browser Address line.


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