The trickle down effect of the Brexit, what can be seen on the ground in China as an immediate impact in global currencies takes place? If you’re not aware already, the favorite asset of the Chinese has to be real estate, overwhelmingly with out a doubt. The current culture in China has an unwritten rule that requires a man to have a home and a vehicle before a woman’s family will accept said man to wed their daughter. This unwritten rule has led to a massive inflation in Chinese real estate that has sent prices in Shanghai and Beijing soaring, close to the best areas in Manhattan in some cases. If we talk about Hong Kong? Even worse. The combination in Hong Kong of the urban density combined with mainland buyers now eating up what little supply there is has led to a housing crisis.
The Chinese Hukou system (almost like a city passport system), also leads to some other issues. In order for an individual to buy a home in many cities throughout China, he needs a local Hukou. Its very likely these days that the wife is from one city and the husband from another and the wife wants to stay put. So what do you do? In many cases they buy a home in the wife’s city before marriage and put the title in her name in order to qualify for the purchase and or any mortgage. Now what happens if the wedding gets called off after the property is purchased, but before the marriage takes place to trigger any community property law protection? You get the picture.
That’s why real estate has become the primary asset for the Chinese, they believe it is the foundation of a family and will appreciate for ever (which obviously can’t be true). Back to the Brexit. The RMB has spiraled down to about 6.6 Yuan for every dollar, which leads to more expensive property purchase prices for Chinese in the United States after converting their currency. This is spurning a higher currency conversion rate into US dollars in order to buy US assets such as real estate than we have seen in the past 12 months or so, with major California markets being the apple of their eye. Namely Arcadia and San Marino in Los Angeles, and Fremont, Palo Alto, San Jose and Cupertino in the Bay Area.
As the Chinese become more leery about the safety of their currency value combined with a lack of an equivalent FDIC, you’ll see more and more money pouring out of China into the Western countries in the years to come. If you live anywhere near those major coastal US markets, better buy something now before the prices become inflated and out of reach for the average American. The difference this time will be a lack of leverage. The Chinese bring cash and that means that waiting around for a foreclosure crisis might be wishful thinking.