One in 3 super rich in China builds wealth on real estate

BEIJING • China's wealthy families are twice as likely as global peers to have made their millions in real estate, according to a report co-authored by UBS Group which found an increasing focus on wealth preservation and succession.

Nearly one in three - almost 30 per cent - of participants surveyed said their wealth came from property, followed by consumer discretionary and industrials. The swelling ranks of China's super rich are also turning to family offices as they focus on wealth maintenance and succession planning, the study showed.

The concept of a family office is quite new in China compared with Europe, the United States and other parts of Asia, where rich families have long used privately held firms to handle investment and wealth management decisions. The combined wealth of billionaires in mainland China fell 12 per cent in 2018 to US$982.4 billion (S$1.3 trillion), according to a UBS/ PwC Billionaires Report in November.

For about one-third of the clans polled, the primary wealth management vehicle is a single-family office, while around 16 per cent opted for a multi-family office. The average net wealth of those in the report is US$943 million and the maintenance of their wealth was the main motivation for establishing or joining a family office, it found.

The study also found the average age of the generation in charge in China is 55.

"The wealth creators are now entering their mid-50s, and considering inheritance and succession planning," the report said. As a result, "the Chinese family office arena has been growing and maturing, rapidly".

It added that while the "relatively subdued global economic environment and heightened uncertainty have, no doubt, affected business and investment in China, as elsewhere", they have also reinforced the need for "structure and organisation" in Chinese wealth management.

Still, there are challenges, including the setting up of a family office structure, recruiting external talent and finding experienced service providers. Trust, confidentiality and reputation are the most critical factors when picking service providers.

In terms of returns, Chinese family offices earned an average of 11 per cent return over the past 12 months, with private equity the top-performing asset class.

About the same proportion of participants adopted a growth-oriented investment strategy, 44 per cent, versus a balanced approach, 43 per cent, while only 13 per cent took a preservation-oriented strategy, according to the report. The study polled 76 family members, family office senior managers and family wealth managers.

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A version of this article appeared in the print edition of The Straits Times on January 10, 2020, with the headline 'One in 3 super rich in China builds wealth on real estate'. Print Edition | Subscribe