China’s South East Asia property market plummets as middle-class faces crisis

Forest City in Johor, Malaysia.

24th September 2023 – (Singapore) A wave of Chinese middle-class investors who snapped up Southeast Asian properties before the pandemic are now scrambling to offload their assets, as China’s faltering economy leaves them cash-strapped.

A local real estate agent has been desperately seeking buyers for over 200 condominiums in Thailand and other countries, owned by his middle-class clients from second-tier Chinese cities. Back in 2017-2018, properties abroad were a popular investment for ordinary Chinese households looking to grow wealth. But with China’s bumpy reopening, protracted property crisis and declining household wealth, many can no longer afford these assets. Despite profitable returns in yuan, some urgently need capital to cover domestic woes like business failures and mortgage defaults.

The uncertain environment has seen China’s middle class become more conservative, according to a Shanghai Jiao Tong University survey. Despite some positive August data after stimulus measures, China still faces hurdles to recovery, including weak confidence.

The mid-2010s overseas buying frenzy was catalysed by Chinese tycoons snapping up high-end foreign property. This motivated the rising middle class to dive into markets like Thailand, betting on capital gains. Chinese developers even built Southeast Asian complexes marketed towards Chinese investors seeking an overseas home. However, those projects now risk devastating losses as buyers evaporate. A landmark $100 billion Chinese-built Malaysian development called Forest City, planned for 700,000 residents, lies practically deserted as investors flee. With occupied units valued at just one-third of purchase prices, many owners are desperate to sell but unable to find buyers.

New Chinese arrivals increasingly rent rather than purchase on impulse like before.

The crisis has also hit Country Garden, the Chinese developer behind Forest City now facing possible default. The property sector’s financial woes are dragging on China’s wider recovery, owing businesses and workers billions. Overall household investment returns in China have dropped into negative territory, reports Southwestern University of Finance and Economics.

Policy tightening on private enterprises has also stifled the middle class, as their prospects depend on the private sector. This demographic dividend is disappearing amid rapid ageing, further hampering middle-class growth.

Yuan depreciation has reduced Chinese purchasing power. When investors entered Japan, the yuan-dollar rate was 6.5 to the dollar, versus today’s 7.3. B&Bs targeting Chinese tourists now face losses as visitors vanish. “Expenses cannot be offset by long-term returns,” said market researcher Tina Chen.

With China missing growth forecasts, the government has unveiled property market stimulus measures since July, although effects remain limited. Thailand’s second-hand market is saturated, while foreign investors shun resale homes. “Our goal is still Chinese middle class wanting overseas transfers,” explained Yao. But only 6 out of 200 Thai condos have sold this year.

The former enthusiasm of middle-class property investors now seems a distant memory. Yao hopes sales may pick up if China’s economy steadily recovers. However, the overseas asset boom’s bust reflects a battered and anxious Chinese middle class’ reduced global footprint for the foreseeable future.