Real estate created the Chinese elite. Here’s what happens next

Chinese families are turning to the family office model to manage their enormous wealth

Jan.January 11, 2020 08:00 AM
(Credit: iStock)

(Credit: iStock)

Real estate seems the best way to amass a fortune in China, according to the country’s elite.

A UBS Group AG survey of 76 wealthy families found that 30 percent of respondents said they built their fortunes through real estate, twice the percentage of wealthy families elsewhere in the world, according to Bloomberg. Consumer discretionary and industrials were the next most common means of wealth-building in the country.

The average net worth of respondents was around $943 million and most families seem intent on accruing more wealth. Just 13 percent of respondents said they’ve adopted preservation-oriented strategy. The other 87 percent of respondents were split between growth-oriented or balanced approaches.

More wealthy families are founding or joining family offices to manage those fortunes. About a third of families manage their fortunes through single-family offices and another 16 percent manage through multi-family offices.

Family offices were historically not as common in China as they are in Western and some other Asian countries, so finding talent and experienced service providers is said to be a challenge.

Still, those family offices are doing well, earning an average return of 11 percent, twice the global average and above the 6.2 percent average in the Asia Pacific region.

While real estate is the basis for many fortunes in China, private equity performs better — direct private equity investments earn a whopping average return of 19 percent and private equity fund investments earn an average return of 15 percent.

Direct real estate investments are the next-best-performing assets with 14 percent returns, while real estate investments trusts bring in nine percent returns on average. [Bloomberg] – Dennis Lynch

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