While Chinese real estate billionaire Zhang Xin, the chief executive of Soho China, has made her money in the real estate market it looks as though she is currently sitting on the side lines. She is in no way suggesting that worldwide real estate markets will collapse, or even fall back significantly, but she is suggesting now may be the time to sit back and let prices settle. She has expressed her opinions on the US real estate market as well as the Chinese property market both of which have performed relatively well in recent times. Why the note of caution from this renowned Chinese real estate billionaire?
Low interest rates
It is common knowledge that low interest rates around the world have fuelled demand for property markets because of the minimal returns on deposit. Whether looking to secure long-term rental yields or perhaps short-term capital gains, it seems that more and more investors are ploughing money into real estate. At some point, and this phase has begun in the US, worldwide interest rates will begin to rise but it will be many years before they reach anywhere near their previous “traditional” levels. However, Zhang Xin believes that US real estate and Chinese real estate are relatively expensive and there is no need to rush in.
US real estate
We all know that the US real estate market has benefited from the election of Donald Trump as president of the USA. He believes he can increase US GDP growth to around 4% despite the fact the Federal Reserve is currently forecasting growth of under 2%. Donald Trump obviously has significant experience in the real estate market and many believe his long-term policies will benefit this particular asset class. However, while his initial days in office were dominated by overseas “issues”, over the last few days he has struggled to push through his much discussed healthcare reforms.
This has caused a slight wobble on US stock markets and may put a slight dampener on the real estate market in the immediate future. The medium to long term future of the US economy is still a subject of much enthusiasm and it will be interesting to see how this pans out.
Chinese real estate
The Chinese government has been determined to reduce the number of investors moving funds offshore. This has been partly achieved by exchange rate restrictions although these cannot last forever. Zhang Xin is one of many property experts in China to suggest that the market is expensive and now may be the time to sit on the sidelines and cherry pick your next purchase. In the background there is always the Chinese government pulling the strings on areas such as real estate investment and this is unlikely to change for the foreseeable future.
Conclusion
It is interesting to see experienced investors such as Zhang Xin suggesting that US and Chinese property markets look relatively expensive at this moment in time. Perhaps more importantly she does not believe property assets will fall significantly in value so we can assume it is just a catch-up period for the relevant economies. Will investors take heed of somebody who has been there and done it? Or will they continue to plough money into what many now deem to be expensive real estate assets?