There’s a fascinating post over at ZeroHedge on how a lot of housing recovery here has been a result of Chinese oligarchs looking for somewhere to stash the money they’ve looted from the Chinese people:
This means that far from indicating a recovery, as the recent surge in the high end of the US housing segment had long been touted, all the relentless move higher in ultraluxury properties prices was simply a recycling of China’s hot money, which unlike in the US, never made its way into the Chinese stock market (explaining why the Shanghai Composite has barely budged in years) and merely ended up in US real estate. If anything, this is simply another confirmation of the epic capital misallocation, and the complete lack of “trickle down” resulting from failed global central banking policies.
So now that the “who” has been answered, just one question remained: “how?”
How did millions of Chinese “buyers” manage to get tens of billions of yuan or dollars out of the mainland – a country which as is well-known has strict capital controls when it comes to individual and corporate offshore outflows? Under Chinese law, citizens are allowed take only the equivalent of US$50,000 out of the country each year: hardly enough to buy a storage closet in any of New York City’s Central Park West duplexes.
Today we learn the answer and it has to do with officially sanctioned “money laundering” services by not one but two of China’s largest banks: Bank of China and also Citic.
I’m not sure how much credence to place in this. On the one hand, I’ve heard any number of anecdotal claims that most of the houses, particularly expensive house, that are being purchased are being purchased with cash, many by foreign buyers. On the other hand the $92 billion spent by foreign buyers over the period in question is a tiny fraction of the $1.2 trillion in housing purchases over the period.
My hipshot reaction is that this phenomenon is true but it’s a lot more significant to the Chinese than it is to us. That may vary by market. A lot of these purchases are concentrated in a few markets and although purchases by foreigners may be just 7% of the total over the entire U. S. they may comprise a much, much more significant part of the total in specific markets.