Asian businessman drinking alcohol in a luxury car.
Wei-Kuan Lin | Moment | Getty Images
Asset managers told CNBC that China’s wealthy are currently adopting a “conservative” investment strategy, with their money flowing into international assets as China’s economy stagnates, dragged down by a struggling real estate sector.
However, the country’s luxury real estate market remains a popular asset.
“There has been a notable increase in transactions in Shanghai’s premium property sector,” said James MacDonald, head of China research at global real estate firm Savills, attributing this to recent policy easing by the government.
China has relaxed some regulations on property purchasing, resulting in an increase in new luxury property launches in urban centres, satisfying potential demand, he added.
In May, the government reduced the number of years people have to pay tax before buying property in Shanghai from five to three. The down payment requirement for first-time home buyers was also reduced from 30 percent to 20 percent.
In the current climate, luxury homes in Shanghai have become valuable assets for preserving wealth and liquidity, especially for the ultra-rich.
Stephen Poe
CIO of Hefeng Family Office
Sam Shi, head of China research at CBRE, said luxury homes, especially those in Shanghai, have become scarce in recent years, making them a good investment for local affluent and wealthy families.
According to data provided by Xie, transaction volume for new homes priced at least $2.75 million per unit increased 38% year-on-year in the first quarter of 2024. Xie noted that 40% of these buyers were Shanghai locals.
Luxury projects such as The Arbor in Shanghai’s upscale shopping district Xintiandi, The Bund Garden in Greentown and The Shanghai Arch in the financial district Lujiazui all sold out upon launch, according to Christine Li, Knight Frank’s head of research for Asia Pacific. Still, China’s luxury property market remains concentrated mainly in first-tier city centres, Li said.
“In the current environment, luxury homes in Shanghai have become valuable assets for preserving wealth and liquidity, especially for the ultra-high net worth individuals,” said Steven Pau, chief investment officer at Hefeng Family Office.
Experts told CNBC that other domestic investment areas, such as the real estate market and China-listed stocks, are less popular among the ultra-rich.
“Chinese clients have traditionally been biased towards real estate and domestic equities,” said Nick Shao, CEO of Hong Kong-based multi-family office Hiwin International.
But these wealthy Chinese investors are diversifying across a wider range of asset classes, including currencies, private credit, private equity, U.S. Treasuries and developed market equities, Xiao told CNBC.
“For many Chinese clients, U.S. and Japanese stocks offer the opportunity to participate in high-growth sectors and longer-term trends that aren’t likely to reverse in the near term,” he said. U.S. Treasuries help lock in historically high yields, while global private equity offers a layer of diversification on top of public market exposure, he added.
Night view of the Lujiazui financial district in downtown Shanghai.
Tai Yongyuan | ePlus | Getty Images
Similarly, Pau noted that inflows of wealthy Chinese into international assets are reflected in increased allocations through Qualified Domestic Institutional Investors (QDIIs) and Qualified Domestic Limited Liability Partnerships (QDLPs). QDIIs are a program that allows financial institutions to invest in securities outside China. QDLPs are a program that allows them to convert local yuan into foreign currencies for overseas investment.
“This is in line with an overall trend of investors being defensive,” Pow said, adding that China’s wealthy are becoming more conservative due to uncertainty in the domestic economy and the broader geopolitical environment.
Pow noted that after experiencing losses, particularly in real estate and domestic stocks, wealthy Chinese are looking to preserve capital and move towards higher-yielding, lower-risk products such as U.S. Treasuries.
Some Chinese clients are struggling to choose from the myriad hedge fund strategies available internationally due to a skills shortage.
Nick Hsiao
CEO of Hiwin International
“This contrasts with the more diversified investment approach of HNWIs in other parts of the world, who tend to allocate their funds to mutual funds and multi-asset portfolios,” he said.
Compared with their global peers, China’s wealthy investors have spread their assets across too many banks and brokerages without a comprehensive overview to gauge their performance, Xiao said.
“Some Chinese clients are struggling to choose from the myriad of hedge fund strategies internationally due to a skills shortage,” he said. Others are unable to manage risk with a more holistic view, such as incorporating macro, geopolitical and sectoral aspects into investment decisions.
Pau said the difference in investment behaviour highlights the differing mindsets and risk tolerance of mainland Chinese investors and those overseas.
The former group [is] Men are more inclined towards capital preservation and steady income generation, while the latter tend to adopt a more balanced and diversified approach to wealth management.”
