Chinese billionaires take over New York prime property market

Chinese money is hitting New York’s prime property hard and heavy amid slowing domestic growth and the Yuan devaluation in August. High-Net-Worth individuals and big companies are swiftly moving to hedge their assets abroad, spurred on by academic and migratory motivation. From the humble origins of Ah Ken’s Chinatown and his Park Row cigar shop in the late 1800’s, a new wave of Chinese is flooding forth, hindered only by the lack of luxury property on the market.

Chinese buyers are doing what any sensible investor would. They’re hedging their bets and their assets as their homeland heads deeper into deflation. As GDP growth and exports slow, the Chinese government’s choice to let the currency devaluate looks like a move to stimulate their ailing export market. Indeed, their manufacturers could benefit from cheaper exports, but the others won’t so they’re moving their assets abroad.

Chinese investors buy trophy property

New York has all the traits of a good investment and its appeal isn’t lost on Chinese investors. The price per square foot of trophy property, ultra-luxury residential and commercial real estate, ranges from about $2,100 to $2,500 according to Knight Frank’s Prime International Residential Index 100 (PIRI 100). That’s about half the cost of a square foot in Hong Kong and cheaper than London. In 2014 New York also had the strongest growth of luxury property value (18.8%) in comparison to a world average of just 2% according to the PIRI 100 report on Global Property Growth.

Education, investment and residence: New York has it all

The three main motivations for HNW Chinese buying abroad are education (85%), investment (65%) and emigration (60%) according to Juwai.com, international real estate broker. So understandably, New York ranks first as destination of choice thanks to the proximity of world-class schools and universities, the strengthening US economy and preferential Green Card fast-tracking for wealthy investors with the EB–5 immigration program.

The top 220 individuals ranked on Forbes’ China Rich List 2014 are billionaires, the top seven have $10 billion each in assets and leader Jack Ma, Alibaba’s founder and executive chairman, a massive $19.5 billion. On top of that, China occupies the first four places on the Forbes List of World’s Biggest Public Companies 2015. So it is not particularly surprising that they’re hitting the Manhattan market hard. Real estate agents for luxury residential and commercial property do voice fears that heavy investing into the market will push the prices beyond a sustainable point. There are equally rumblings against a new “China price” as fierce Chinese investors outbid forcefully and consistently others with cash asset offers.

Record deals cut on hotels

But China’s ailing growth is nearly old news and companies back home have been working to reduce their currency exposure and diversify their portfolio. Even before August 2015, Chinese insurance companies were leading the charge on Manhattan hotels. Anbang Insurance Group clinched the Hilton’s iconic landmark and presidential favourite Waldorf Astoria, only to be upstaged by Sunshine Insurance in February who made history with the record-breaking purchase of the unopened Baccarat Hotel for over $230 million.

Real estate in Manhattan close to good schools and on Long Island are particularly favoured by the Middle Kingdom’s investment class. Jones Lang Lasalle, commercial real estate service provider, notes that trophy property, particularly prized by the Chinese, shows below-average vacancy rates and that 75% of Class A property is held by long-term owners. This is actively driving new big budget buyers into previous unexplored suburbs and Class B real estate.

As the shadow of deflation looms on the horizon of China’s economic future and New York maintains the magnetism of financial stability and leading property value growth prospects, Chinese assets will continue to flow eastwards. However these investments are greeted with mixed feelings and fears of a bubble on the New York market will certainly not be allayed if Chinese investors continue to compete for real estate as they once did for commodities.

Leigh Stewart, Tranio