After Xi Jinping’s anti-corruption campaign emptied the VIP baccarat tables in Macau causing gaming revenue to plunge 40% month after painful month, China’s stock market miracle might well have functioned as a convenient outlet for the gambling propensities of the country’s ultra rich.
That all came to a rather unceremonious end three weeks ago when the unwind of as much as CNY1 trillion in backdoor margin lending triggered a terrifying 30% collapse in Chinese equities.
Fortunately for China’s ultra rich, dollar strength has served to completely eliminate [10] the South American bid from Miami’s once-booming condo market. As a reminder, here is the situation in South Florida:
[11]
As you can see, price increases leveled off in H1. The reason (according to Kevin Maloney, founder and principal of Property Markets Group who spoke to Bloomberg [12] last month): “A very strong shift in the last year in the dollar ... has literally pushed whole countries out of the marketplace.”
Yes, whole Latin American countries (and maybe a few Russian oligarchs), but certainly not China, and what better way to shore up a market in which price appreciation has recently flatlined after three consecutive years of 15%+ gains than to lure in Chinese buyers who, having helped send Manhattan condo prices to nosebleed levels and who are perhaps now looking for less volatile places to park their fortunes having watched their domestic stock market take a nosedive, may now be looking for a fourth, fifth, or sixth home away from home. WSJ has more [13]:
Wealthy buyers from Brazil, Venezuela and Argentina have fueled a real-estate frenzy in Miami in recent years, sending luxury-condo prices soaring. Now, Miami developers and real-estate agents are setting their sights on a more distant part of the world: China.
In April, representatives for several Miami condo buildings made the 8,000-mile-trip to the Beijing Luxury Property Show, a trade show that attracted more than 5,200 wealthy Chinese to look at international properties. Sales agents for the Fendi Chateau Residences, a luxury development going up near Florida’s Bal Harbour, handed out brochures in Mandarin for condos priced from $5 million to $22 million. Nearby was Lauren Marks, the marketing coordinator for two luxury-condo buildings: Palazzo Del Sol and the forthcoming Palazzo Della Luna, on Miami’s Fisher Island.
“I’m here on a fact-finding mission,” said Ms. Marks. “I’m trying to decide if this is the right place for us to facilitate a meaningful relationship with Chinese buyers.”
Executives of the Miami Association of Realtors, the largest local group of the National Association of Realtors, were there, too, handing out Miami market data and gold palm-tree pins attached to a card with the tagline, written in Chinese, “Enjoy the unique taste of life.”
Part of the reason for their journey: South American buyers, who comprise the largest foreign buying group in Miami, aren’t buying as rapidly anymore. A recent study by the Miami Downtown Development Authority found that sales of new condo units still under construction have slowed, in part because South American investors have less buying power, due to the increase of the U.S. dollar compared with South American currencies.
Meanwhile, Chinese buyers are beginning to take a closer look at the city. “The Chinese are coming along very strong,” said Simon Henry, co-founder of Juwai.com, a China-based website that connects wealthy Chinese with overseas properties. “Miami looks relatively cheap compared with some of the big cities like San Francisco and New York.” Juwai says the average budget for Chinese buyers shopping for overseas properties on its site is $2.3 million.
Currently, only 2% of international buyers in Miami come from China, according to the Miami Association of Realtors. But potential changes in Chinese investment policies, and the relatively strong Chinese yuan, are making the Chinese look like a good bet to Miami developers. The Chinese government is expected to begin raising annual limits on how much an individual can invest overseas from the current $50,000 cap—a rule often skirted.
And Chinese buyers have become an increasingly dominant force in U.S. real estate overall. According to the National Association of Realtors, Chinese buyers recently surpassed Canadians as the top foreign buyers of homes in the U.S., purchasing $28.6 billion of properties in the 12-month period ending in March.
There it is. The reason why Carlos Rosso, president of Related Group of Florida so confidently told Bloomberg last month that this time is "different" and that the current deceleration in condo price appreciation will not soon turn into a rout.
In short, Miami condo developers are depending on the China bid to rescue the market from overbuilding much as the entire world depended on China to absorb oversupply in the lead up to the financial crisis. We'll check back next quarter to see if an influx of Chinese buyers was enough to stop prices from posting their first Y/Y decline in seven years.
