Chinese investors favor luxury watches over houses

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Once-enthusiastic Chinese property investors are turning to luxury watches as a better store of value in the face of slowing economic growth and President Xi Jinping’s intensifying campaign against property speculation.

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

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

Camille Gaujacq, an analyst at Daxue Consulting, a Shanghai-based market research firm, said a slowdown in the real estate sector, once “the investment of choice” for China’s wealthy class, had prompted many to seek alternatives.

Luxury watches may be the answer,” Gaujacq said.

Real estate has been a one-sided bet in most Chinese cities since the country’s urban housing market was liberalized in the late 1990s. he collapse of the China Evergrande Group and other highly leveraged property developers has led to a rare drop in property prices in recent months.

Analysts and real estate buyers increasingly expect the downturn to continue. China’s Communist Party Politburo recently reiterated Xi’s assertion that “houses are for living in, not speculation”, even as he takes steps to support the wider economy.

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

Slow-down

As consumer demand has been hit by the economic downturn, high-end watches have grown in popularity among the wealthy. An October survey of 1,500 Chinese adults whose annual household income exceeds Rmb500,000 (€69,507) by CSG Intage, a Hong Kong-based consultancy, found that 88% of respondents planned to maintain or to 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[demontres/àvendreauxclients”[watches/toselltothecustomers”[demontres/àvendreauxclients”[watches/toselltothecustomers”

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

In the eastern province of Jiangsu, Sam Yu, owner of an electric heater maker and two apartments, said his purchase of a Rmb700,000 Patek Philippe watch in August was a “wise” investment.

“After two years, I can sell the watch with a small profit,” said Mr. Yu, who last bought a house five years ago, “I won’t be able to do that with an apartment. Given the political uncertainties, it may take several months to find a buyer unless I offer a significant discount.

According to Watcheco, China’s leading online platform for second-hand watches, many high-end brands have risen sharply in value in recent years. Popular models such as the Rolex Submariner can now command 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 retailer. “Prices are unlikely to fall in the foreseeable future.”

Portability

A third driver of the luxury watch boom is their portability, which provides wealthy citizens with an easy way to transfer assets overseas if needed. Mr Wang said some of his customers had spent tens of thousands of dollars on a watch so they could evade strict capital controls that impose an annual limit of $50,000 (44,283 euros) on remittances from individuals abroad.

“Customs officers won’t notice your watch or may not know how much it’s worth,” Wang said. “It creates a safe and efficient way to transfer your money overseas.” – Copyright The Financial Times Limited 2021

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