Despite the recent slow down in Vancouver residential real estate sales, wealthy Chinese individuals continue to send money overseas at unprecedented levels. Concerned with a slowing Chinese economy, a plunging stock market and the recent devaluation of their currency (Chinese Yuan), capital continues to flow out of China at unprecedented levels. Much of this cash is flowing into real estate not only in Vancouver but also Australia, New Zealand and the U.S. Last year the Chinese surpassed Canadians as the number one foreign purchasers of U.S residential real estate.
The Chinese government has capital controls in place and limits the amount an individual may convert to the equivalent of $50,000 Cdn per year. With West Vancouver benchmark home prices currently at $3,359,000 and North Vancouver at $1,689,000 how can Chinese buyers afford these properties and move enough cash from China to Canada ? I found this Bloomberg news story a few months ago which explains one way…
GO TO A HONG KONG MONEY CHANGER:
Daniel Zhang, 34, is a self-made millionaire who lives in China’s southern city of Shenzhen. Earlier this year he gave the equivalent of $77,000 to a local money-changing shop and saw it appear less than an hour later in a bank account he had previously opened across the border in Hong Kong.“It was easier than I expected and cost little,” says Zhang, who bought Hong Kong stocks with the money. “I don’t know whether this is legal, and I don’t care that much.”
In Hong Kong, more than 1,200 currency-exchange shops have seemingly little daily activity. These brightly lit storefronts specialize in helping wealthy Chinese transfer their money overseas. The premium isn’t high — only about 1,000 yuan ($160) per HK$1 million ($130,000) more than bank exchange rates would be if they could do the transaction.
It works like this: Chinese come to Hong Kong and open a bank account. Then they go to a money-change shop, which provides a mainland bank account number for the customer to make a domestic transfer from his or her account inside China. As soon as that transaction is confirmed, typically in just two hours, the Hong Kong money changer then transfers the equivalent in Hong Kong or U.S. dollars or any other foreign currency into the client’s Hong Kong account. Technically, no money crosses the border — both transactions are completed by domestic transfers.
While the first exchange has to be set up face-to-face, customers can place future orders via instant-messaging services such as WhatsApp or WeChat, and money changers set no limit on how much money they can move. If the shops need to top up reserves in say, Hong Kong, they can transfer money directly from the mainland as a business transaction, which isn’t subject to the same currency controls as individuals.
“We have customers who took out HK$8 million and planned to use the money to make investments or buy properties,” says a manager at a money-change shop in Hong Kong’s Mongkok district, who only gave her surname as Wong. “I think it’s legal as long as customers provide enough documents.”
Wong’s shop makes about HK$4,000 in profit from each HK$1 million transaction.
Hong Kong banks have been stepping up controls to report suspicious transactions and reduce the risk of financial crime, the Hong Kong Monetary Authority said in response to questions, noting that banks accounted for 83 percent of reports last year to the police-customs agency that helps investigate money laundering.
“Hong Kong is a gateway” for the Chinese to move cash to other countries, says David Ji, Hong Kong-based head of research for greater China at real estate brokerage Knight Frank LLP. “Once the money arrives in Hong Kong, it’s free as a bird.”