Chinese investors favor luxury watches over homes

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Once-enthusiastic Chinese real estate investors are turning to luxury watches as the best store of value amid slowing economic growth and President Xi Jinping’s intensifying campaign against real estate speculation.

Several high-end watch dealers have told the Financial Times that business has taken off in recent months as the wealthy have stopped buying additional homes and instead spend their extra money on luxury watches such as Rolex and Patek Philippe.

The buying frenzy, experts said, has contributed to a 40% increase in Chinese imports of Swiss watches in the first 10 months of this year, even as the economy as a whole has cooled.

Camille Gaujacq, analyst at Daxue Consulting, a Shanghai-based market research firm, said a downturn in the real estate sector, once the “go-to investment” for China’s upper class, had prompted many people looking for alternatives.

“Luxury watches may be the answer,” Gaujacq said.

Ownership has been a one-sided gamble in most Chinese cities since the country’s urban housing market was liberalized in the late 1990s. But Xi’s determination to deliver “common prosperity,” as well as the collapse of the country. China Evergrande group and other highly leveraged real estate developers have caused real estate prices to drop infrequently in recent months.

Analysts and home buyers increasingly expect the slowdown to continue. The Communist Party of China Politburo recently reiterated Xi’s claim that “homes are for living, not for speculation” even as he takes steps to support the economy at large.

On Monday, China’s central bank announced a five basis point cut in its one-year “loan prime rate” to 3.8%, but left the five-year rate, used to price mortgages, unchanged at 4.65%.

As consumer demand has been hit by the economic downturn, premium watches have grown in popularity among the wealthy. An October survey of 1,500 Chinese adults with more than Rmb 500,000 ($ 78,370) in annual family income by CSG Intage, a Hong Kong-based consulting firm, found that 88% of those surveyed planned to maintain or increase their spending on luxury watches, which cost Rmb 76,700 on average, over the next 12 months.

“The high end of the watch market is very strong,” said Simon Tye, author of the study. “If you go to a Rolex store right now, there won’t be enough [watches] sell to customers.

For many wealthy buyers, luxury timepieces are not only a marker of social status, but also a hedge against inflation.

In the eastern province of Jiangsu, Sam Yu, owner of a manufacturer of electric heaters and two apartments, said his purchase of a Rmb 700,000 Patek Philippe watch in August was a “wise” investment.

“After two years, I can sell the watch for a small profit,” said Yu, who made his last home purchase five years ago, “I won’t be able to do it with an apartment. Due to political uncertainties, it may take several months to find a buyer unless I offer a large discount. “

According to Watcheco, the leading online platform for used watches in China, many high-end brands have risen sharply in value in recent years. Popular models such as the Rolex Submariner can now order up to five times their original price.

“There is a lot of demand and a lack of supply for some high-end models,” said David Wang, a Shanghai-based luxury watch dealer. “Prices are unlikely to fall in the foreseeable future. “

A third driver of the luxury watch boom is their portability, which offers wealthy citizens an easy way to transfer assets overseas when needed. Wang said some of his clients spent tens of thousands of dollars on a timepiece so they could escape the strict capital controls that place an annual limit of $ 50,000 on remittances abroad. individuals.

“Customs officials won’t notice your watch or may not know how much it’s worth,” Wang said. “It creates a safe and efficient way to take your money abroad. “

Additional reporting by Xinning Liu in Beijing and Tom Mitchell in Singapore

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