Another first. No study to date has attempted to assess the effect of Chinese buyers on real estate markets globally.
There have been several one-country studies but in the paper highlighted today researchers Yuk Ying (Candie) Chang, Hamish D. Anderson and Song Shi from the Massey University of New Zealand and the University of Technology in Sydney respectively look at 23-countries to see if any broad patterns emerge; they do.
Looking at quarterly home price data from Australia, Belgium, Canada, Croatia, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, South Africa, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and the United States over the period 1993~2015 two effects are clear.
First, when the rate of growth of China’s GDP slows home prices in the observed countries rise. By how much? A 1% reduction in the rate of GDP growth shows up as an aggregate increase in prices of 0.23%
Second, when the savings rate in China increases home prices in the observed countries rise. By how much? A 2.3% rise in savings rate growth shows up as an aggregate price rise of 0.23%.
These moves may not sound much but, as the paper points out, a study in 2015 estimated the combined value of the world’s real estate then at U$163trn or 2x the world’s aggregate GDP and around 45% of all ‘mainstream’ assets worldwide.
The effect of Chinese buyers is greater in countries where English is the first language and educational facilities most developed. Moreover these effects are subject to amplification in response to domestic Chinese investor’s sense of home risk.
So how do we think this dynamic may be operating at present? Well, the domestic Chinese stock markets are down significantly this year indicating a heightened sense of unease, GDP growth is being managed down and savings continue to rise.
Hmmm. Sydney-siders, among others, consider yourselves informed. That Chinese buyer you’ve been talking to who’s bee slow to get back may be closer to making the call than you think.
You can access the paper in full via the following link China and International Housing Price Growth.
Happy Sunday.
[I has some issues with this work, particularly the deferential nods to Nobel Laureate Mr. Harry Markowitz. Mr. Markowitz (and friends) is responsible for some beautiful financial theory on which much of the world’s investment management industry is built. It is however mostly wrong. The neatest take-down on this was and remains an essay from Mr. James Montier in 2007 which, if you’re interested, you can access via this link CAPM is Crap, or, The Dead Parrot Lives]