- A new report on Chinese investment in U.S. real estate predicts a renewed surge of investment after 2020 and steady progress til then.
- Chinese investors put more than $93 billion in residential real estate between 2010 and 2015.
- Chinese buyers are finding a growing number of resources for mortgages in the U.S.
- In 2015, approximately half of Chinese buyers were current residents of the United States.
When Berkshire Hathaway HomeServices Northwest broker Becco Zou has a new client in town from China with a long shopping list, the Chinese-born agent tells them: “Show me the money.”
Usually they go away for awhile — and then they come back. They are worth waiting for — they might want a $3 million home, a commercial investment and a ranch where they can entertain clients.
This may sound extreme, but they will often buy more than one property, said Zou.
What are Chinese buyers doing right now?
Based in Seattle’s upmarket Bellevue, Zou said while she felt a slowdown in Chinese investor activity last year, the momentum is building again as they have successfully found loopholes around Chinese government restrictions on taking more than $50,000 out of the country.
Zou estimates she did around $10 million in sales volume last year with this group, but she is already at the same amount for May. Of course, she is well-positioned because she is Chinese-born, working as a translator for a top American executive before leaving China to come to college in the U.S.
The broker said she is expecting a lot of business this summer after a number of inquiries recently. The Chinese buyers, typically women, are bringing their children to Seattle, dropping them off at summer camp and starting the house search, she said.
As Seattle expands as a headquarters for a number of American and Chinese companies, these clients might be families of tech executives with companies such as GIX, the collaboration between Microsoft, Tsinghua University and the University of Washington.
“In Seattle, there is a real paradigm shift — we are changing from a second-tier city to first-tier metropolis, and going through the growing pains,” said Zou.
She has had to explain to clients that this is not possible in the current market, which also has American cash buyers and where the purchase price is often above the asking price.
“I am a resource center; I facilitate, educate and help them understand how business is done in the U.S,” she said.
She also likes to give her Chinese buyer a team of experts to help them when they are ready to take action. They often need a Chinese-friendly mortgage broker, for one.
“I will provide them with good professionals, a CPA tax attorney, a lawyer, a project manager. I am their safeguard.”
Zou is cautious about over-bidding for properties — so her clients don’t regret the price they paid down the road.
US real estate market still cheap in comparison with mainland China
While the Seattle market may seem expensive and heady to other U.S. markets, it is still cheaper than first-tier Chinese cities such as Beijing and Shanghai — and property ownership in the U.S. is more secure.
A new report out this week predicts that the flow of money from mainland China into the U.S. residential real estate market is likely to continue and grow as Chinese families and investors seek to divert their savings from their, at times, uncertain domestic market.
According to “Breaking Ground: Chinese Investment in U.S. Real Estate,” a report by the Asia Society and the Rosen Consulting Group, an independent real estate consulting, research, and analysis firm, in the five years between 2010 and 2015, Chinese buyers spent at least $93 billion on U.S. homes, including condominiums, for occupancy and investment.
Spending rose at an annual rate of 20 percent and provided important demand in many local markets hit hard by the housing crisis, said the report.
California favorite market for Chinese investors
California accounted for 35 percent of Chinese home purchases in 2015, followed by Washington state with 8 percent of sales and New York at 7 percent.
Massachusetts, Illinois, Texas, and Hawaii were other prime destinations, and Chinese buyers were also purchasing homes in Florida in some numbers.
Some of this activity was related to the direct flights from China to the United States and because there are established Chinese and Chinese-American populations in these cities.
China accounted for 16 percent of total international home purchases in the 12 months ending March 2015, up from 9 percent in 2010, according to the National Association of Realtors (NAR).
“More than any foreign investor other than Canada, China stands out for the breadth, depth, and speed of its participation in the U.S. real estate market,” said the report.
And it is stepping up its exposure to the U.S. market. Chinese buyers purchased at least $28.6 billion of residential property in the 12-month period ending March 2015, an increase of 30 percent from the prior year and a compound annual growth rate of 20 percent since 2010.
This represents more than 33,000 home purchases by Chinese individuals in 2015.
Chinese buyers paid substantially more, on average, per home than other international buyers because of their concentration in prime neighborhoods in California and New York, according to the research.
The average home price for Chinese buyers in 2015 was $831,800, up from $590,800 in 2014. In comparison, the average home price for all international buyers in 2015 was $499,600, up from $396,180 in 2014.
Dispelling the myths about Chinese buyers
One myth dispelled by the report is that not all Chinese buyers are jetting in to buy a U.S. home and then leaving the country. In 2015, approximately half of Chinese buyers were current residents of the United States, having either immigrated within the past two years or holding a professional, educational or another type of visa permitting them to live here.
Nearly 40 percent of Chinese buyers, however, stated an intention to use the home as their primary homes.
Meanwhile, although around 70 percent of Chinese buyers have been been buying their homes with cash, this is changing.
“The tools available to individuals are becoming increasingly sophisticated,” said the report. “The evolution from all-cash purchases to utilization of debt instruments to finance acquisitions highlights the increasing maturity of real estate investment techniques.”
This bodes well for more individuals investors to follow their friends who have already bought in the States.
“Growing mortgage availability for Chinese buyers, from Chinese banks in the United States, American lenders, and some international banks, should expand this pool of buyers to include even more upper-middle-class families that may not be prepared to pay fully in cash but can afford a mortgage comfortably,” said the research.
Another tactic being used by some Chinese buyers is to purchase their first U.S. home in cash and then to take out a home-equity loan to make funds available for additional home purchases, now with a U.S. credit history to more easily access the lending market.
Buyers who may have bought one house in cash can increasingly buy multiple homes, providing greater opportunities for capital preservation, said the report.
Chinese developers are more entrenched in the U.S.
As well as individuals buying real estate, Chinese developers have entered the U.S., often in joint partnership with local builders with some success. By the end of 2015, Chinese-funded projects under construction or planned totaled at least $15 billion. These range from multi-billion-dollar mixed-use projects in Los Angeles and the San Francisco Bay Area to smaller-scale developments in secondary markets.
While their properties appeal to Chinese buyers who prefer new homes, they are, in general, being designed and built for the American market, said the Asia Society research.
Another point of progress is Chinese developers are becoming more adventurous in where they will go and so are investors.
Said an Asia Society spokesman: ‘What we’re seeing is that Chinese developers are moving beyond those large markets, to secondary markets, and that buyers are following them there.
“With dwindling development opportunities in downtown L.A. and central Orange County, for example, a number of investments have already been made in periphery Southern California cities.
“Many individuals looking to purchase homes follow where the major developers go, not only for the advantage of buying from a familiar brand but also because of the implicit vetting of new markets by those developers.”
The short- and medium-term outlook
If agents are not seeing as much Chinese investor activity as they were expecting, this is not surprising — but it will return.
The “Breaking Ground” research predicts a slower 2016 thanks to stricter capital controls by the Chinese government.
“We forecast that Chinese purchases of houses and condos will be just short of $25 billion, down from $28.6 billion in 2015. We assume that these stricter capital controls will only last six to 24 months and that in the long term, purchases of residential real estate will accelerate further.”
The long-term investment drivers remain good, said researchers. This is thanks to strong U.S. demand for capital; a widening and deepening pool of Chinese investors, many of whom have not ventured into U.S. real estate before as well as an increasing global appetite by Chinese developers and construction companies.
“We believe China’s economic turbulence will create a short-term speed bump for real estate investment overseas, including in the United States. In the near term, a six- to 24-month temporary period of increased capital controls is likely — either formally via policy announcements or informally through administrative processing — until the Chinese currency can be re-aligned with that of global partners. However, this does not mean investment will cease during this period.”
The report concluded that between 2016 and 2020, Chinese residential purchase volume could total $160 billion. Over the long term, the annual flow could accelerate to as high as $50 billion by 2025 if open capital flows become more institutionalized and the U.S. economy is as strong as it has been in recent times.
Beyond financial motivations for investors, Chinese individuals, it noted, seek U.S. property purchases as a path to residency and educational opportunities for their children.
How can the U.S. real estate agents benefit from these investors?
Citing the 2015 National Association of Realtors survey, contacts and referrals are by far the primary sources of leads for international homebuyers in the United States, said the “Breaking Ground” report.
Chinese buyers tend to place a special emphasis on personal connections, relying on information and advice from friends and family members to make decisions on home purchases, it added.
Local real estate agents should be aware that they will be competing with Chinese homeowners already established in a U.S. neighborhood, to provide firsthand information about the area to their networks still in China and alert them whenever nearby properties come on the market.
“As the Chinese population grows more concentrated in a residential area, specialized real estate professionals begin to emerge, as U.S. brokers and developers learn Chinese customs and preferences, as well as acquire language skills and/or employ translators, not to mention the growing number of Chinese immigrants and Chinese Americans working as residential brokers.”
Mark McLaughlin, CEO of San Francisco Bay Area-based Pacific Union International, one of the sponsors of the report, said it would dispel some of the myths put out by media organizations like the Wall Street Journal.
He said Pacific Union had not seen any slow down from Chinese investors in the Bay Area despite restrictions on the exit of investment funds from China, and at the same time had seen the arrival of a handful of large Chinese developers in the Bay Area including the Vanke Group and Gemdale Group.