China's panicked upper middle class are easy picking for offshore real estate scams

The combination of Chinese anti-corruption reforms and currency controls has China's storied "middle class" (a nebulously defined category whose size and wealth are the subject of multiple, conflicting accounts) scrambling for ways to get their money out of the country and to establish bolt holes to escape to, should the situation suddenly worsen.

One preferred investment in this group is real estate in western countries like Australia, Canada, New Zealand and the USA. Partly as a function of the large pool of investors from China (combined with other offshore property speculators), property in the great western cities has reached unprecedented prices, unprecedented growth and unprecedented liquidity: if you bought a condo in Vancouver or Sydney, you would pay a fortune, the price would go up, and you could sell it on a couple days' notice. Property became an "asset class" like bonds or stocks, easy to liquidate, with the added bonus that an offshore property was somewhere you or your kids could live if you ever had to escape China in a hurry.

As China's own property bubble has cooled off, more and more investors have flocked to offshore property speculation, making them easy pickings for scammers who vanish overnight with millions in cash, leaving Chinese investors and offshore builders high and dry. One such is Ausin China, which had "17 luxury offices" across China and disappeared with $49.6 million in cash from 200 Chinese investors, cratering 15 Australian construction projects.

Chinese investors face perils beyond garden-variety scams: the Chinese government is increasingly ruthless in punishing people who evade currency controls, and cities around the world are limiting foreign ownership and requiring disclosure of the true beneficial owners of newly purchased properties, making it easy for the Chinese authorities to punish people who buy offshore.

Asian cities are also being rendered uninhabitable by real-estate bubble fuelled by Chinese speculation: Malaysia's newly elected anti-corruption prime minister Mahathir Mohamad is cracking down on Chinese property purchases.

In the case of Ausin China, the company had been soliciting Chinese investor funds for projects being developed by a number of Australian firms, including Stockland and Mirvac, since 2009. It sold over 8,000 Australian properties in the past decade and launched an aggressive expansion in 2016, setting up luxuriously decorated branches in more than a dozen of China’s largest cities and offering free investment tours for rich mainlanders to inspect show homes in Melbourne, Sydney and Brisbane.

Based on the promise of an easy way to buy foreign exchange to pay for their Australian properties and an annual rental return of 5 per cent for up to five years, Xin and other Chinese clients said they agreed to pay deposit and settlement monies to Ausin China, which promised to transfer the payments to Australia.

“The reason we gave the money to Ausin was the difficulty in making capital transfers from China to Australia … so Ausin helped us send the money to the developer,” Xin, who is in her early 40s, said, acknowledging that this circumvented restrictions on capital transfers out of China.

As well as the annual cap on foreign exchange purchases, Beijing also limits individuals’ overseas withdrawals using a Chinese bank card at 100,000 yuan per year.

Desperate Chinese middle class take big risks to move money, and themselves, overseas [He Huifeng/South China Morning Post]

(via Naked Capitalism)

(Image: John Bradley, CC-BY-SA)

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