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What has happened the the Chinese luxury wine market ?

What has happened the the Chinese luxury wine market ?

As China’s anticorruption campaign dampens demand for expensive wines, the red obsession with Bordeaux vineyards is starting to evaporate.

Chinese were the biggest buyers of Bordeaux vineyards in 2013 with 25 deals, or 75% of the total number of transactions. They bought over 900 hectares, or 2,223 acres, in total, accounting for 20% of the land that changed hands in Bordeaux last year, according to Vineyard Intelligence, which tracks vineyard purchases.

This year, the French consulting firm has recorded 14 transactions involving buyers from China and Hong Kong, accounting for just 43% of the total number of deals. The Chinese bought just 250 hectares, down 72% from a year earlier.

The campaign, started by President Xi Jinping about two years ago to curb excesses among officials and improve the image of the Communist Party, has also cut into the restaurant business in China and car and property purchases.

Industry observers say the campaign appears to be behind a decline in Chinese purchases of both French wines and vineyards.

French wine such as Chateau Lafite Rothschild, the most coveted bottle in China, had seen huge price increases in recent years, which in turn had increased the interest in French vineyards.

“A lot of Chinese saw a huge opportunity to sell Bordeaux wine in China so they bought châteaus,” said Alexander Hall, owner and founder of Vineyard Intelligence. “That is not as easy now, because there is quite a lot of stock on the market.”

China still imported more wine from France than any other country last year, though the value of those imports fell 12.3% from 2012, while wine from Chile, the U.S. and Italy all rose, according to the International Organisation of Vine and Wine, a Paris-based organization that tracks wine.

A French château is a big trophy for wealthy Chinese. As much as 40% of Chinese with $30 million or more in net assets are interested in owning a vineyard, according to property research firm Knight Frank, the highest among 10 countries it tracked. But instead of looking at vineyards as a retirement hobby or vacation home, many Chinese buyers are treating a vineyard as a business, hoping to corner the market for its wine’s sales in China.

But the government’s austerity campaign has laid bare how official gifting and banqueting accounts for a large part of the wine consumption, rather than a real interest in French wine among Chinese middle-class or wealthy consumers.

“The fact that the government crackdown on corruption has reduced the sales so severely demonstrates that the general population has not taken it in their life, let along lifestyle,” said Qingyun Ma, dean of the architecture school at the University of Southern California and owner of the Jade Valley vineyard in Xi’an, China.

 Chinese interest in owning a vineyard exploded in 2011, when Vineyard Intelligence recorded 17 deals by Chinese buyers, including movie star Zhao Wei. The director and actress bought Chateau Monlot in Saint Emilion, a prestigious wine region. But the estate itself isn’t a particularly well-known one or a Grand Cru Classé, according to Vineyard Intelligence.

Another Chinese celebrity buyer is Shi Yuzhu, founder of Internet gaming company Giant Interactive Group Inc. He bought Chateau Plain-Point in 2013, a relatively well-known estate in the Fronsac region.

Increased scrutiny at home has curbed some big Chinese corporate purchases. China’s National Audit Office in June accused Haichang Holdings Ltd. and Rave Sun group of buying châteaus in France with money earmarked by local governments in Liaoning province to invest in foreign high-tech companies.

Some of the vineyards bought by Chinese owners were put back on the market recently, according to Kate Everett-Allen, a partner at Knight Frank. For example, Chateau Grand Branet in Capian, in the middle of the Bordeaux wine region, which was sold to Haichang Group in 2011, was put up for sale in 2013.

None of the vineyards purchased by Chinese buyers this year is estimated to have sold for more than €10 million ($12.2 million) and most for less than €5 million ($6.1 million), Vineyard Intelligence, adding that the most expensive Bordeaux vineyard sold to Chinese buyers last year went for more than €20 million ($24.4 million). The exact prices in the sales, which are private market transactions, aren’t disclosed.

New Chinese buyers are more wary of the difficulties of managing a vineyard from 5,000 miles away and across culture differences. Such apprehension grew after the crash of a helicopter taking a Chinese businessman who had just bought a large French vineyard on a tour of his acquisition, killing Lam Kok, the businessman and his 12-year-old son.

“It has sadly suggested that the joy of a bird’s-eye view of one’s possession isn’t the whole story of owning a winery,” said Mr. Ma.

The diminishing interest from China in Bordeaux hurts less desirable properties the most. When Chinese dominated in volume, they have focused on less prestigious areas.

They have only bought a handful of estates in the most prestigious areas, such as Saint-Emilion, Pomerol and Margaux, according to Vineyard Intelligence, and the properties haven’t been high-profile names. Almost all of the Grand Cru Classé estates sold recently in Saint-Emilion have been purchased by French buyers.

“When we had this real rush of enthusiasm from China, many didn’t pay much attention to the quality of the assets,” said Mr. Hall, adding that prospective Chinese buyers now are more discerning.

Part of an Article Posted in the Wall Street Journal

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