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China: Real estate rich

The number of billionaires in China is growing steadily. Some of them made their fortunes in the real estate sector.

Some of the most successful Chinese entrepreneurs are now going together to maintain their position, according to studies by the consulting firm PwC and the major Swiss bank UBS.

The real estate market continues to boom

In the past 20 years, China has managed to become a global economic power. The incomes of the 1.4 billion Chinese grew and led to enormous growth of the middle class. This resulted in a real estate boom that drove up prices for houses and apartments. According to estimates, every second new building worldwide was built in China in 2015. Already in 2013 there were 171 cities in China with over one million inhabitants, and this with an urbanization of less than 50 percent. For comparison: in 2012 the degree of urbanization in Germany was 74.1 percent. As of October 15, 2018, the Chinese People’s Bank reduced the minimum reserve by 100 basis points to 14.5 percent. For the real estate market, the increased liquidity of the banks increased the pressure on the demand side. This led to further rising property prices, which were already very high in the metropolitan areas at that time. Entrepreneurial families who have been investing in the real estate sector for years have been able to continue to increase their wealth.

In 2020, UBS published a study entitled “Chinese Family Office and Wealth Management Report” in cooperation with AVIC Trust and the consulting companies Campden Wealth and FOTT. This shows that 30 percent of the families surveyed built their wealth from real estate transactions, followed by the consumer sector and industry.

Family office as a way to success

According to the study, family offices are becoming an increasingly popular form of wealth management for the Chinese super-rich. In the meantime, two thirds use this type of asset management. The main reasons for such a strategy are, on the one hand, the preservation of family wealth over several generations. On the other hand, family offices are used as a platform to process investment decisions. For families who do not currently use such an office, over 75 percent are interested in such a strategy. 84 percent of those interested are already taking active measures to set up a family office. Compared to Europe and the USA, such a concept is still largely unknown in China. Because in these regions, rich families have long used privately owned companies for their investment and wealth management decisions.

The global real estate market remains attractive. grundbesitz global invests worldwide in commercial real estate from the areas of office, logistics and retail. Why this is interesting for private investors.

China is now the country with the most billionaires, followed by the United States in second place. Research shows that the super-rich continue to be successful in global equity and private markets. Comparing the performance of billionaire listed companies to the MSCI AC World Index, a mix of the MSCI World and MSCI Emerging Markets indices, billionaire companies’ prices have risen 17.8 percent over the past 15 years. This contrasts with a price increase of 9.1 percent in the MSCI AC World Index.

A long-term strategy ensures long-term success

For the report, PwC and UBS evaluated the data of 2,101 billionaires in 43 countries. This corresponds to a total coverage of 98 percent of billionaires’ global wealth. The authors also conducted dozens of interviews with client advisors and the billionaires themselves. The result is that billionaire entrepreneurs tend to pursue a long-term strategy – regardless of whether the founding family or an external CEO takes over the operational business. According to analysts, the so-called “billionaire effect” depends on the entrepreneur remaining in control, regardless of whether the company is privately owned or not.

Image sources: leodaphne / Shutterstock.com

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