A slump in the Chinese real estate market is encouraging more Chinese investors to buy property abroad, and Malaysia is on their list of potential destinations.
Juwai IQI's most recent real estate research, headlined "China Property Slowdown Drives Southeast Asia Property Investment," claimed that the country's residential real estate crisis is reducing demand for domestic property and driving Chinese investors abroad.
Chinese demand for international real estate has grown dramatically in 2022, according to Lona Wang, head of sales for Juwai IQI's China team, which is based in Shanghai.
"We see our clients looking overseas as an alternative because they expect better returns than here in China. Prices are falling in many cities across China, especially in second tier cities, and the new developments market looks risky. Investors have decided they prefer to invest overseas," she said.
According to Kashif Ansari, co-founder and group chief executive officer of Juwai IQI, Chinese purchasers are deterred by the outlook for the domestic residential real estate market.
According to him, more people are searching abroad for second houses, investment properties, or their principal residences.
About 10,000 high-net-worth Chinese are expected to relocate from China this year, bringing with them an estimated US$48 billion, according to investment migration consultancy Henley & Partners.
The only country that is projected to lose more HNWIs this year is Russia.
According to Kashif, the fact that the real estate market appears to be stuck for years is causing a fresh Chinese foreign investment bubble, but it is likely to be more controlled than the one that occurred from 2014 to 2018.
In 2017, at the peak of the Chinese outbound investment boom, Chinese buyers acquired US$119.7 billion of international residential and commercial property. That dropped to US$49.6 billion in the following year.
"The Covid pandemic pushed it down even further. If current trends continue, it may climb again. The outbreak of the Covid pandemic had an immediate impact on Chinese cross-border buying intentions. In the first quarter of 2022, when the pandemic was still limited to China itself, Chinese buyer demand for offshore properties soared.
"The longer-term impact of the pandemic, however, has been to create obstacles to international travel and transactions has been to reduce Chinese demand for residential property in other countries," Kashif said.
The ranking of Southeast Asian markets that Chinese consumers favour hasn't altered much during the past two or more years of the pandemic, the survey claimed.
Leading the list are Malaysia, Thailand, and Vietnam, and fourth place is held by Singapore. Indonesia moved ahead of the Philippines and Cambodia in the first half of 2022.
Laos comes in last of the nations taken into consideration.These rankings are based on the purchasing inquiries made by mainland Chinese and Hong Kong buyers through the network of more than 25,000 agents and online portals operated by Juwai IQI.
Why is Malaysian real estate of interest?
According to Kashif, Malaysia is close by, reasonably priced, and provides purchasers from China, particularly those from the frigid north, a desirable lifestyle.
Deep economic ties between Malaysia and China have unavoidably resulted in a community of Chinese expats living there, he said.
Additionally, the nation's economy is quickly rebounding from the pandemic. Forecasts predict that the gross domestic product (GDP) will expand by 5.5 per cent for the entire year of 2022, which will fuel measures of household income and job growth.
"Many Chinese buyers believe Malaysia's market will recover from its current weakness in the coming year and reward investment. Malaysia's new Premium Visa Programme (PVIP) opens the door to wealthy migrants who wish to reside and work in the country. It is the latest move towards transforming the emphasis of Malaysia's immigration policy from quantity to quality," Kashif said.
He said the firm believes the new visa program will succeed in attracting close to its target of 1,000 participants in the first year.
"The conditions are not demanding, and the benefits of living in Malaysia under a long-term visa are very attractive. Foreigners want to be able to live and work here, send their children to the local international schools, and not have to worry about renewing their visas every six or 12 months," Kashif said.
The conditions for residency under the PVIP include income of RM40,000 per month, an RM1 million deposit in a Malaysian bank, and an upfront participation fee of RM200,000 per applicant and RM100,000 per dependent.
The visa is valid for 20 years, although renewals are required every five years.
The top nationalities participating in the PVIP will include Japanese and other Asian nationalities, then Europeans, North Americans, and the Gulf nations.
What causes Chinese homebuyers to search abroad?
Chinese households are losing faith in the housing sector, which has produced tremendous economic gains, while home prices are declining and new housing construction is halting, according to Juwai IQI's property report.
This situation reflects a complete 180 degree turn for the Chinese housing market, which during the boom of the preceding decades experienced average real house price growth of 13.1 per cen per year in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen.
China now has a large homeownership and investment population. According to a research published in the Cities magazine in October 2020, more than 90 per cent of Chinese households are home owners, and more than 20 per cent are multi-home owners.
Juwai IQI's property report stated that the Chinese housing market accounts for 30 per cent of GDP, twice the share in the USA.
Through the need for everything from steel girders to home appliances, it has contributed to driving global economic growth over the past 20 years. It is currently the largest asset class in the world and, at $55 trillion to $60 trillion, is more valuable than the whole US stock market's market capitalisation.
Government initiatives are being used as cover for the housing stall. According to Chinese President Xi Jinping, "houses are for living in, not for speculating," and the Beijing government has put rules into place to make domestic real estate investment more challenging and less appealing.
Beijing has set out to lower the danger of debt in the real estate sector, moderate housing prices, and redirect investment to more productive industries. In addition, it aims to stop speculation and lower housing costs for middle-class households.
This year's sales have decreased by 40 per cent as a result of purchasers staying away from the market. Consumers may have stopped making payments on 5 per cent of all mortgages, totaling between 1.8 and 2 trillion Chinese yuan (US$270 and US$300 billion), in response to their concern that the development of the new homes they are paying for could never be finished.
S&P Global Ratings predicts that property prices will decline by 30 per cent this year, a greater decline than that experienced during the 2008 Global Financial Crisis, Juwai IQI stated in its report.