China’s benchmark stock index, the Shanghai Composite, fell 5.9 percent yesterday and has tumbled 30 percent over the past three weeks. The ChiNext index of small-cap stocks has plummeted over 40 percent.
If you happen to be developer in San Francisco with a significant number of Chinese buyers who have made nominal deposits but haven’t yet closed escrow, you might be a little concerned, at least behind closed doors. The same goes for projects with commitments from Chinese funds.
At the same time, embracing the popular misinterpretation of ‘crisis’ to mean both danger and opportunity in the Chinese language, one could also argue that a flight to quality from Chinese equities to Bay Area real estate could actually accelerate the pace of foreign investment in local real estate.
2 thoughts:
1 – The Chinese markets that have fallen 30% in the last month…are still up 70% over the last year.
2 – In the last few months, there has been a huge speculative bubble in these markets – and as with most bubbles, since there’s always a seller for every buyer, it’s the little fish that have been driving up the bubble, while it’s been the big fish who have likely been selling. Much of the new money that came in and drove the bubble was from poorer farmers, hairdressers, etc., etc. These aren’t the people who buy foreign real estate. They had a new casino opened for them, and they dove in. The profile of a Chinese investor, I imagine, would be someone with much more wealth than the farmers. They’ve either been invested from the beginning (and are up 70% in the last year), or might well have been selling off into the rally – and now have even more $$$. The peasants have been left holding the bag (well, the peasants plus the Chinese gov’t, which is dumping $$ into the market, trying to act as the Plunge Protection Team.)
I lean towards – either no effect on Chinese buying SF real estate, or maybe a few extra buyers. At least for now. God knows what the actual true value is of Chinese stocks – they’re too opaque – so it’s impossible to tell where the market will ultimately settle to. If it loses the last 12 months’ 70% gain and then keeps on going down, down, down, then yeah, that might reduce capital outflow.
+1. Many of these SF Chinese buyers are connected, sophisticated UHNWs. They’ve basically been told to park wealth offshore, with the expectation that it could come back in the event of domestic crisis to help stabilize things. Pretty much any fixer will tell you this.
K what’s a UHNW please. For us proles to understand better.
Ultra High Net Worth individuals
What is the break point for ultra-high? 100 million? 500 million?
The stock market is only about 40% of China’s GDP (compared to over 100% here). The average Chinese citizen has only 15% of asset in stock.
So no, while the stock market plunge has been bad, it will not have the same effect had it been in the USA. If anything, many investor are now frightened of the market and will want to put their money somewhere safer and less volatile.
Market was up 150% before the sell off. Keep things in perspective.
Probably a rush to buy more SF property than less.
I Agree.
watch as the developers and property owners try to flip and or sell off their properties again, flip, reflip, flip, reflip…
all a game, and the banks know it, and the government does nothing to regulate it…..
Yes! Crisitudity!
Yes Aaron, it’s a terrible thing when somebody buys something with the intent to resell it later. Government should definitely step in and prevent anything from being resold. Not just houses, but cars, furniture, stocks, bonds. You name it. I want more government.
Yes, let’s get the government bureaucracy off our backs.
Let’s start by demanding an immediate end to Prop 13, the mortgage interest deduction, and artificially suppressed interest rates.
I agree with the first two, but am baffled by the third. Are you suggesting that the Fed raise interest rates to plunge us into depression?
Yep! The only that matters is high interest rates for the rentier class of “investors” and coupon clippers.
2b….yes, and don’t forget rent control and low income housing programs!
Let’s also get rid of the courts (who needs contracts?) , police, environmental protection (if you can’t afford to move somewhere to breathe clean air, too bad) and food inspection, too. Could probably save me $500 a year in taxes.
Certainly, because having a functioning legal system has exactly the same level of importance as ensuring that upper middle class folks get a tax deduction…
Is there any ACTUAL data on the % of buyers in SF that are from China (not US perm residents)? I keep hearing this thrown around but is the number really more than say 5%
does anyone have this data or all anecdotal?
Wouldn’t they be moving their money into Real Estate abroad to escape the wrath?
SF is really not that attractive for Chinese individual investors. They prefer the quiet suburbs close to technology centers like Santa Clara or PA near Stanford University.
Why?
I would be more worried about this if I owned a lot of real estate in Vancouver, BC. I don’t really see mainland Chinese as a major force in this area.
It’s true that the average Chinese citizen has a smaller share of their net worth invested in stocks but that’s not true with respect to high net worth mainlanders (who are the ones buying real estate in the Bay Area).
China’s regulators just banned major company stockholders and executives – not the farmers and little fish – from selling shares for six months and I have a feeling the big fish are being encouraged to double down with the government.
Potential for a dead cat bounce but this is going to get ugly and spread.
UPDATE: It Was Black Monday In China And U.S. Markets Sang The Blues