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Brexit Implications on Chinese Purchases of U.S. Real Estate

2016-07-08  Source:JinList.com
For many years, Chinese saw Britain as a more open market place compared with the rest of the European Union. Many Chinese firms set up shop in the U.K. with the plan of running their European operations from there. Britain was seen by Chinese as a bridgehead to the EU.

However, the instabilities brought on by the British referendum to leave the EU and the fall of the pound to its 31-year low against the dollar have caused pause among Chinese investors. Those with a plan for follow on investments in U.K. real estate need time to re-think, commented Dr. Jin Zhao, founder and CEO of JinList.com. The Brexit shock and its ripple effects have weakened investors’ demand for British assets. U.S. real estate will be even more attractive now, said Dr. Zhao.

Chinese spent over $110 billion on overseas real estate in the latest 5 year period ending 2015. Among the 69 million affluent middle class Chinese who have the net worth to purchase real estate overseas, those who bought U.S. real estate have fared better as compared with those who purchased real estate in the U.K.

For many Chinese families, a top consideration is investing in real estate with the purpose of paying for their children’s education. The U.S. education, considered more desirable as compared with an U.K. education, consistently attracts many Chinese students and their parents. Given China's high valuation of properties near schools and universities in many metropolitan cities, it is easy to understand Chinese investors wanting to put their money to work in properties near highly rated schools and universities in the U.S.

Despite a slowdown due to Beijing’s clampdown on capital outflows, Chinese overseas investments in real properties will likely reach $218 billion during the second half of this decade. The U.S. real estate market will draw an even bigger share going forward. Just as Mark Mobius, chairman of the Templeton Emerging Markets Group, put it the “center of gravity” swings to Asia.

References: Asia Society and Rosen Consulting Group. The Wall Street Journal. CNBC

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