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Thought for the Day: Chinese Investment Worldwide

Thought for the Day: Chinese Investment Worldwide


Keith Rankin, 17 February 2015

We are in the habit of calling asset purchases 'investment'. And a big issue around the world is how the beneficiaries of China's rapid economic growth are placing the savings generated by this growth. It's clear that one of the most significant destinations for these savings is the real estate markets around the world.

Many people who have been to Auckland Airport recently will have seen the sign:
"REACH OVER 2,000,000 CHINESE PROPERTY BUYERS HouGarden.com NZ Real Estate Worldwide"

And China Daily recently published a list of ten countries that Chinese nationals like to buy property in. New Zealand is prominent on that list. While the New Zealand picture is of Queenstown, it would seem clear that the majority of these purchases are in Auckland. Christchurch, though, is increasingly on the radar of Chinese buyers. Bayleys has "been actively pushing Christchurch property at expos in Beijing and Shanghai" (Radio NZ story, 10 Feb: Strong Chinese interest in Chch property).

A number of countries have placed significant restrictions on foreign purchases of real estate. New Zealand is not one of them.

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Clearly there is ambivalence in New Zealand about following suit, given that the inflow of foreign money boosts aggregate demand in New Zealand, and makes some generally wealthy New Zealanders feel even wealthier. There are also sound reasons to believe that any future bust in global property markets will be relatively shallow in Auckland, a global city that may serve as a bolt-hole for foreign residents with New Zealand connections. Further, as a food-producing country, New Zealand's exporting future is probably more secure than is the exporting future of many other countries. New Zealand looks relatively low risk from an outside perspective.

Also the risk is that imposing restrictions here could put an end to the capital gains that many foreign and domestically resident buyers have gambled on. When the capital gains dry up, a significant local 'correction' may follow. If Auckland property busts at a time that is not a global crisis, then there are plenty of other places for that Chinese (and other country) savings to flow to. Untenanted properties can be sold relatively quickly, and it may well be that many foreign-owned properties fall into this category.

In New Zealand, the National Party needs to take its head out of the sand, and acknowledge that global demand for New Zealand real estate assets is a significant cause of overpriced housing in New Zealand. And restrictions on city-fringe land supply is substantially overstated as a cause of homelessness in New Zealand.

The best immediate policy would be to pay a small subsidy to landlords who are able to prove that they are good responsible landlords with properties that would satisfy a rental warrant of fitness, and who are willing to have their properties registered as meeting these requirements. That's the carrot. The stick would be to tax owners of empty properties; apparently there were 22,000 empty properties in Auckland in 2013.

The bigger issue is a global one, and it applies more to China than anywhere else because of China's sheer size, and its phenomenal growth over the last few decades. It's all very well to point out that growth has brought many Chinese people out of poverty. The problem is that income distribution in China is very unequal, and that still means far too few opportunities to invest in businesses in China that provide goods and services to ordinary Chinese people.

In short, inequality in China has substantial consequences for the world economy.

ENDS

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