Chinese wealthy favor luxury watches to high end real estate

In the face of slowing economic growth and President Xi Jinping’s escalating battle against housing speculation, China’s previously enthusiastic property investors are turning to luxury watches as a superior store of value.

The Financial Times said that high-end watch resellers have seen a surge in business in recent months as rich individuals have opted to spend their excess cash on luxury watches such as Rolex and Patek Philippe rather than buying more residences.

According to analysts, the buying rush contributed to a 40% increase in Chinese imports of Swiss watches in the first ten months of this year, despite the broader economy cooling.

A slowdown in the real estate business, long the “go-to investment” for China’s rich, has caused many to explore for alternatives, according to Camille Gaujacq, an analyst at Daxue Consulting, a Shanghai-based market research firm. “Luxury watches might be the solution,” Gaujacq added.

Since the late 1990s, when China’s urban housing market was liberalized, property has been a one-way bet in most Chinese cities. However, Xi’s drive to provide “shared prosperity,” along with the failure of China Evergrande Group and other heavily indebted property developers, has resulted in a rare drop in real estate prices in recent months.

Analysts and purchasers of real estate are increasingly predicting that the slump will continue. Even while it takes measures to assist the wider economy, the Chinese Communist Party’s politburo recently underlined Xi’s position that “housing are for living in, not speculating.”

China’s central bank cut its one-year “loan prime rate” to 3.8 percent on Monday, but kept the five-year rate, which is used to pricing mortgages, unchanged at 4.65 percent.

While consumer demand has suffered as a result of the recession, high-end watches have become increasingly popular among the rich. According to CSG Intage, a Hong Kong-based consultancy, an October survey of 1,500 Chinese adults with annual household income of more than Rmb500,000 ($78,370) found that 88 percent of respondents planned to keep or increase spending on luxury watches, which cost on average Rmb76,700, in the coming year.

The study’s author, Simon Tye, stated, “The upper end of the watch market is really solid.” “Right now, if you go to a Rolex store, they won’t have enough [watches] to sell to consumers.” Luxury watches serve as both a social status symbol and an inflation hedge for many wealthy purchasers.

Sam Yu, the proprietor of an electric heater maker and two residences in Jiangsu’s eastern region, believed his Rmb700,000 Patek Philippe watch purchase in August was a “smart” investment. “I can sell the watch for a tiny profit after two years,” Yu, who bought his most recent property five years ago, said. “I won’t be able to do this with an apartment.” Given the uncertainty around policy, finding a buyer might take months unless I provide a substantial discount.”

Switzerland is a desirable area to work, yet it is in desperate need of expertise. Work permits, on the other hand, might be difficult to come by. Many high-end brands’ values have risen dramatically in recent years, according to Watcheco, China’s top online platform for second-hand watches. Popular Rolex Submariners, for example, may now fetch up to five times their original price.

“There is a lot of demand for some high-end models and a scarcity of supply,” said David Wang, a Shanghai-based luxury watch distributor. “In the near term, prices are unlikely to soften.”

The mobility of luxury watches is a third driver of the luxury watch boom, since it allows rich residents to easily shift assets overseas if necessary. Wang claimed that some of his customers spent tens of thousands of dollars on a watch to get around severe capital controls that limit individuals’ overseas transfers to $50,000 per year.

“Either customs officers won’t see your watch or they won’t know how much it’s worth,” Wang explained. “As a result, you’ll be able to send money abroad in a secure and efficient manner.”