Family Offices Establish Themselves on Foreign Soil

Adnan Zai

With more freedom of investment and more money in the hands of Chinese investors, the game is changing regarding where interested parties can safely place their investments. With the ongoing lockdowns meant to curb the pandemic, and newfangled family offices being formed by the Chinese, many investors have turned to real estate in Singapore as a place to safely place their money. The United States is another tenable solution for Chinese investors looking to buy real estate, and experts are hoping that the international investments can build back up to pre-pandemic levels sooner rather than later.

Chinese Investors Change Their Tune

Investing in China has been modified for the last several years due to the economy, as well as the pandemic. What started in 2019 when protests rocked Hong Kong’s economy and sent rich Chinese scattering for a better place to store their own wealth, was exacerbated by the crackdown of the education industry in 2012 and Chinese President Xi Jinping’s emphasis on common prosperity. Iris Xu, founder of an accounting and corporate services firm, said her Chinese clients “believe there are plenty of opportunities to make a fortune in China, but they are not sure whether it is safe for them to park money there,”

Many wealthy Chinese turned to Singapore for a safe place to store cash, as they don’t have a wealth tax. Creating a family office is a good way for these Chinese families to create a mechanism in order to invest in a way that brings more confidence. A family office manages the wealth and investments for well-to-do families and is a privately held company. Starting one in Singapore will typically require $5 million in assets.

Another reason Chinese are interested in instituting a family office in Singapore is because of China’s response to Covid-19. “The country has a global investor program that allows adults who invest at least $2.5 million Singapore ($1.8 million) to apply for permanent residency.”

Because China’s government could even suspend issuing passports in order to control the virus, many Chinese people have been looking for a way to more easily move around the globe.

Moving Outside the Borders

In addition to Singapore, investing in American real estate is a viable option for family offices and other investors, but the process has been hampered by the virus. China’s borders are still closed in hopes of containing Covid-19, which is bad news because Chinese investors like to see the properties they purchase before buying. The pandemic has also slowed studying abroad programs, and a 20% reduction in the number of Chinese students studying in the US has impacted the market, because Chinese students sometimes buy homes with family money.

The problem will not improve in the near future, believes Reva Goujon, senior manager at New York-headquartered Rhodium Group, which specializes in China research. “Slower economic growth in China in recent years has already been weighing down inflows. The current economic headwinds are strong and growing,” he said.

Experts Looking for a Surge

Investors on both sides of the ocean hope that things will get back to normal soon, as Chinese investors buying American real estate is a win-win scenario. Currently, the Chinese (including People’s Republic of China and Hong Kong, represent the largest foreign real estate investment into the United States. Between 2010 and 2021, Chinese buyers of US real estate have purchased an average $18 billion per year of US property, with a total of 27,000 units purchased each year.

Experts believe the business will bounce back.  “When China’s borders reopen to free travel, the rebound in Chinese property acquisition will rapidly gain pace as visits climb,” said Kashif Ansari, whose firm gauges demand based on client enquiries and advertises US$4 trillion worth of property from 111 countries.

“The US home market is very appealing to Chinese buyers,” he said. “In particular, the prospect for continued rapid price growth attracts buyers who are eager for capital gains.”

California, Georgia, New York and Michigan were the top four US destinations for Chinese residential property money as of March 2021, the trade association said.

If the pandemic improves soon and Chinese investors can execute their investment plans, then experts predict a positive trajectory for foreign investments, especially on American soil.

Adnan Zai

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