Tag: Real Estate

Three Emerging Trends of Chinese Tourists

September 12, 2015

airplane-takeoff

The word is out: Chinese tourists are coming for you! Over the last decade, outbound trips from China have increased substantially. In 2014, Chinese tourists made over 67.5 million trips abroad. We should expect these trends to only increase as China’s wealthy have by now already developed a strong need to explore new places to sightsee and park their cash. Here are three trends for you to be aware of to stay ahead of the “China Tourism Wave.”

  1. CHINESE TRAVEL TO CITIES

According to a report by Oxford Economic and International Hotels Group, blog585% of Chinese travelers prefer traveling to big cities.

 

2. CHINESE TRAVELERS MOVE TOWARDS INDIVIDUAL TRAVEL

No matter where you are from, you’ve probably at one time or another encountered a large Chinese tour group: lots of Chinese in a pack taking pictures, walking around confused, with a tour guide carrying a little flag on top of a long, skinny pole.

But Chinese travelers are starting to change, move away from the pack mentality and more towards traveling with their immediate family or by themselves.

Why is this happening? In part, it is because with new wealth and education, Chinese are able to navigate trips by themselves. They no longer have to depend as much on travel agencies or group travel packages.

What’s more, Chinese travelers are often economic travelers in the sense that they really know what they want to BUY before leaving home and know where they can buy it. Chinese are largely going abroad in search of luxury goods that they cannot get at home, like jewelry, antiques, or designer clothes, or perhaps going to buy discounted tech products that are way more expensive at home. They follow big brands like Louis Vuitton and Michael Kors, and they tend to go to the biggest, best places that they can buy them.

3. DOMESTIC SERVICE PROVIDERS DOMINATE

Chinese service providers are responding to and cashing in on these trends. In terms of travel booking, travelers are now mostly going to online travel booking sites. The two that dominate the China market are Qunar.com and Ctrip.com. It is clear that more Chinese travelers are using these platforms to increase the bookings.

Domestic hospitality and airline companies are also investing significantly in building full-service platforms in foreign countries frequented by Chinese travelers. In the aviation industry, many Chinese domestic airlines like Air China and China Eastern has already started operating directed flights from multiple cities in China to a variety of cities in North America like Los Angeles, Las Vegas, New York, and Houston.

One big company to watch out for in this space is Hainan Airlines (HNA Group). HNA is a monster in the airline and hospitality industry, and they are becoming one of the biggest players in terms of providing “go-abroad” services for the Chinese traveler. They have already begun operating direct flights to Seattle, and earlier this year started a direct flight to San Jose. On the hospitality side, the company is looking to make acquisitions and joint-ventures with foreign hospitality management companies. In June, HNA acquired 15% of North America’s Red Lion Hotels Corporation, and seem poised for more.

If you’re looking to attract more Chinese tourism dollars to your business or community, it would be smart to look at partnering with some of these domestic service providers.

 

 

The Age of Chinese Outbound Private Investment – Published in China US Focus

I am honored to once again be published in a great periodical, China US Focus. This week, I discuss a growing trend that deserves all of our attention: the rise of Chinese private outbound investment. You can read the article on China US Focus here, or read on below:

The Age of Chinese Outbound Private Investment

While the mainstream media debates the future of the Chinese economy, the opportunist understands that China’s rapid economic growth path is only just now starting to bear fruit. We are at the beginning of a new chapter in the Chinese economy: the age of outbound private investment.

It is no secret that during China’s historic economic rise, the country has made significant investments abroad. But up until just a few years ago, a vast majority of this investment was state-led. According to the Rhodium Group, from 2000 – 2011, 70% of China’s outbound investment was carried out by state-owned enterprises. The economic climate has changed drastically in a short amount of time. In 2012, private firms represented 80% of China’s outbound transactions, and just this year, private companies accounted for 16 out of 17 Chinese outbound M&A deals.

Private firms are increasingly looking into more mature markets like the United States to grow their companies. Top industries of choice for Chinese firms include engineering and contracting, energy and mining, household appliances, automotive, and financial services. These types of investments save and even create jobs in the United States, further integrating our two economies and building a great pie.

Recently, there have been a few high profile purchases by large Chinese companies. Last year, Chinese real estate and entertainment conglomerate, Dalian Wanda Group, purchased AMC Theatres for over $2 billion, and is gearing up to use it as a platform for further expansion into the U.S. market. Even more recently, China’s biggest pork producer, Shuanghui International, bought out Virginia-based pork producer Smithfield foods for $4.7 billion.

It’s Not Just About the Companies, It is About the People 

These large-scale private purchases are merely harbingers of a greater trend of private investment and people flow between the United States and China. It truly is the dawning of a new age.

Chinese individuals are more and more looking for ways to get their assets out of China. They are spurred not only by uncertainties about the future of the Chinese market, but also certain present realities. A great majority of China’s private wealth has been built on real estate. But now, in an effort to push down inflation and prevent a housing bubble, the Chinese government has been imposed strict regulations on real estate speculation. In Beijing, for example, the purchase of a pre-owned home is now subject to a 20% tax. On top of that, even owning a second home in Beijing has been banned for new buyers.

There seem to be more changes on the horizon that are causing Chinese investors to look outward. The Chinese weibosphere (equivalent of U.S “twittersphere”) went crazy early in October when a State Council member announced that as part of the upcoming plenary session, the government is considered installing an inheritance tax.

In light of all of all this, entrepreneurial Chinese are wasting no time figuring out ways to get around this by getting out. Emigration to the West has become a preferred option. Tens of thousands of Chinese high net worth individuals are emigrating every year. They see an American green card or other residency permits in Western countries as a safety precaution; a vehicle to make it easier to move money, and their families, out.

Still, China does not make it easy on individuals to get their money out of China. According to Chinese law, an individual is only allowed to transfer up to 50,000 USD worth of Chinese yuan out of the country annually. That means that these investors need to be creative and use their network to move their assets into foreign markets.

This bodes well for foreign financial firms and money managers that stand to grow a multitude of Chinese clients in this space. Currently, there is $4 trillion of private wealth sitting around in China. Astonishingly, only 7% of that is under management. That means over $3.7 trillion of Chinese wealth is unmanaged. Why is this the case? The concept of having third party management of wealth has only begun to emerge in China. In the Chinese economy, the guanxiculture that places so much emphasis on who you know that it makes people very unwilling to trust others, even professional financial managers, with their money. But now, the learning curve that comes with investing in foreign markets is now forcing Chinese to look to professionals to help them.

New Investors, New Markets 

In fact, if Americans can understand how new and untapped this opportunity is, an earnest effort to seek out and welcome private investment from China can help to resurge our economy and rebuild communities that need a kickstart. Americans and Chinese people are actual two sides of the same coin; largely what we know about each other is what we read in the newspaper. For that reason, it is no surprise that historically, individual investment in the United States from China has been concentrated in large, high-exposure markets like New York or Los Angeles. The tide could be turning, however, as more and more investors understand that those markets are becoming saturated. They are starting to look for answers elsewhere.

Take Detroit for example. Although the Detroit market on the surface seems decrepit and failed, the Detroit real estate market has struck a cord amongst Chinese homebuyers. According to the United States National Association of Realtors, the Detroit market was one of the top 5 most inquired about markets amongst Chinese real estate buyers. This seemingly is an anomaly when considering the other markets that have historically caught the eye of Chinese such as New York and Los Angeles.

In Milwaukee, we have been able to attract hundreds of millions of dollars through the EB5 program from Chinese investors. These people are becoming more sophisticated, understanding that the best, safest, and even potentially biggest boon markets in the United States are outside of the major metropolises that they have heard of.

The time is now to start building relationships of trust directly with Chinese investors. The wave of outbound Chinese investment is only just beginning; the playing field is leveled. The question is, are you ready to ride the wave?

The Six-Step Approach For China to Help Rebuild Detroit

Detroit’s announcement of chapter 9 bankruptcy was a difficult but essential step for the city’s resurgence. Now, more than ever, what Detroit needs is belief. Detroiters have to believe that the city will come back; and if new people are going to be attracted to become residents, they’ll have to believe that Detroit is safe, exciting, and profitable.

This type of belief only comes from raising and executing bold ideas. Here’s one: invite China to be a key partner in the revitalization of Detroit. What better statement could be made than to have a city like Detroit, for years mired by resentment of a China that is “stealing our jobs,” finally grow up to strategically engage the world’s second largest economy?

The Washington Post recently published an article outlining six crazy ideas for rebuilding Detroit, so I thought I’d add a twist to that. Below, I propose a six-pronged approach to building the “China Engagement Strategy to Help Rebuild Detroit.” It is a long-term vision, which needs to start with getting people face-to-face, building trust, and ultimately result in real investment and jobs coming into Detroit from this unlikely partner.

1. Pure Michigan in Chinese

Unsurprisingly, Chinese people largely associate the city with the blight, unemployment, and violence that they see on TV. The only way to bring in investment is to get actual people into the city. Investing in a “Pure Michigan in Chinese campaign” will allow Michigan and Detroit to cash in on the growing number of Chinese tourists using their expendable cash to tour America and hopefully change their perception through a direct exchange.

2. Build a strong Sister City Relationship between Detroit and Chongqing

People-to-people exchange needs to increase to build trust. A great platform for this would be bolstering the Sister City relationship between Detroit and Chongqing, which happens to be one of the world’s fastest growing cities

Governor Snyder seems to be ahead of the game on this one as he is planning a stop in Chongqing on his upcoming trade mission. May I suggest he kindly ask Chongqing to write a check to fund a vibrant sister cities program with Detroit?

3. Engage Chinese students in Michigan

Between the University of Michigan and Michigan State University alone there are currently over 5,700 Chinese students going to school in Michigan. While they are pumping in millions of dollars in revenue to the state every year through tuition and fees, that just tips the iceberg. Most of these students would be dying to get job experience during their time in Michigan, even if that required living in Detroit for the summer. These students have the power to change the narrative.

4. Get the EB5 program working in Detroit

Developers around the country have been using the EB5 immigration investment program since 1992 to fund job-creating businesses. Though there are six approved regional centers in Michigan, all with jurisdiction in Detroit, so far, there has not been a successful EB5 case in Detroit, or even in the state of Michigan for that matter. In 2012, over 80% of the visas issued to foreigners thru this program came from China.

5. Detroit Real Estate purchases

Recently, the United States National Association of Realtors noted that Detroit cracked the top 5 most asked about real estate markets from Chinese buyers. Why not use the attention the city is getting now to promote the great properties that already exist? The bankruptcy could indicate to some that now would be the time to buy when prices are at rock bottom in anticipation of a climb.

6. Court China to buy Detroit ‘s assets and invest in companies

China’s government is in a position to make outward investment. They have the world’s largest stockpile of foreign currency reserves, now standing at over $3.44 trillion. China is in the midst of deciding whether or not maintaining such a high number of reserves is literally getting the most bang for its buck, and is making a pivot to make overseas purchases and investments.

What might Detroit have that would be interesting to the Chinese? Of course, as an industrial and manufacturing hub, Detroit has access to infrastructure and technology patents that have continued to grow the presence of Chinese automakers in Detroit. Huge parcels of land are also available at rock bottom prices that are ripe for business development.

If we really believe that Detroit can rise up from rock bottom, it is going to take a few bold ideas like these to make this city tick again. Consider me a believer!

Detroit Attracts Chinese Real Estate Buyers – Detroit News Op Ed

The U.S. National Realtors Association recently announced as part of its report that Detroit ranked in the top 5 in terms of inquiries from Chinese buyers interested in U.S. real estate.

This is an awesome revelation and opportunity for Detroit! I co-wrote a piece on the topic with my colleague, Lamar Irby and Bryan Withall, and the Detroit News picked it up! You can read the op ed by clicking here or read the original below:

Detroit breaks the top 5 for inquiries from Chinese Buyers of U.S. Real Estate

By Dan Redford, Bryan Withall, and Lamar Irby

The time may be right for Detroit to roll out the red carpet for Chinese real estate buyers. In the recently published, “2013 Profile of International Home Buying Activity” by the U.S. National Association of Realtors (NAR), Detroit ranked in the top 5 among hottest cities receiving inquiries from Chinese buyers looking to purchase real estate in the U.S. It certainly stood out as the most unlikely in the group, considering the other cities – Los Angeles, Irvine, Las Vegas, and Orlando – have long been established as strongholds for attracting Chinese investors.

 

How could this be? This recent announcement may not come as a surprise to those that were following Chinese CCTV and social media on the Detroit Real Estate market earlier this year. In March, the China Daily reported that some real estate properties were available in Detroit for $100. On China’s Twitter, Weibo, the term “Detroit Real Estate” was also trending along with “pixie” (English: “leather shoes”), using leather shoes as a metaphor for how cheap Detroit real estate is. The CCTV report alone garnered 1.2 million posts on Weibo, according to “Want China Times.”

 

The “leather shoes” phenomenon quickly died down in the media, but not before at least some Chinese buyers made purchases. And what is now made clear from the NAR report is that Chinese buyers for the moment have their eyes on Detroit. With increasingly strict purchase restrictions and higher taxes for Chinese citizens in their domestic market, the increasing trend is for Chinese to invest their growing assets abroad.

So, how can Detroit take advantage of this opportunity? While it is unlikely for the cheap $500 home buys to be a boon for the city of Detroit, the last thing Detroit needs is to lure Chinese investors into quick, cheap deals that end up being “less juice than squeeze,” if not financial disasters. Clearly, Detroit has a compelling real estate market and economic story of rebirth to tell. A strategy that highlights good deals in good communities in Metro Detroit could build a pipeline for long term Chinese real estate investment and more.

 

Success will come down to how well real estate brokers and officials can tell the story of Detroit and ultimately execute purchases. It’s not that Detroit is without merit. For starters, Detroit’s real estate market prices climbed 13.6% year on year from 2011 to 2012. With prices for homes in Detroit well within the median Chinese purchase price of $425,000, this evidence should be taken as an encouraging sign of vibrancy in the Detroit market.

 

The Chinese should also be invited to be part of the revitalization of Detroit. In the June 7, 2013, Financial Times Life Section cover story, “The Future of the American City,” Detroit was profiled as a “city in the midst of a mini-boom.” The article cited several large investments and businesses recently moving in to the city, such as the high-profile purchases of Quicken Loans CEO Dan Gilbert, as evidence to show that Detroit is indeed gradually rising. Real estate brokers in Detroit should consider translating this article into Chinese and spreading it to the Chinese market.

This can happen. Detroit can build again, and now is the time to welcome the help of our Chinese friends whose interest is already peaked.

–

Dan Redford graduated from Michigan State University and is the Director of China Operations for FirstPathway Partners, an industry leading EB5 immigration investment fund management company. You can follow him at danredford.com

 

Bryan Withall is the Managing Director and CEO of Sino Outbound Limited, a financial advisory firm serving Chinese investors, including both institutions and individuals, interested in overseas real estate assets and real estate related investments. For inquiries: bryan@sino-outbound.com

 

Lamar Irby is a Detroit native and serves as the Director of Finance for China ProSol Consulting Services Co., Limited (www.prosolchina.com). He is based in Beijing.