InternationalInvesting

Foreign wealth flows to US residential markets

For first time since NAR has tracked international buyers, Chinese have moved to No. 1 spot

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Takeaways:

  • Buyers from China have surpassed Canadians, Europeans, Mexicans and Middle Eastern homebuyers as the top overseas purchasers of home in the United States.
  • According to the Realtor data, 76 percent of Chinese buyers pay cash.
  • In the past four quarters, massive capital outflows from China have exceeded $450 billion.

Editor’s Note: This is the first in a two-part series on international buyers in the U.S. housing market. The first article will take a close look at the leading overseas purchaser of U.S. properties — Chinese buyers.

In the 5,000 years of China’s history, never have so many Chinese quietly moved so much money out of the country at such a fast pace. Nowhere is that Sino capital flight more prevalent than the U.S. residential real estate market, where billions are rapidly pouring into the American dream.

From New York to Los Angeles, China’s nouveau riche are going on a house-hunting shopping spree.

This year, for the first time since the National Association of Realtors has tracked foreign buyers of U.S. real estate, buyers from China have surpassed Canadians, Europeans, Mexicans and Middle Eastern homebuyers as the top overseas purchasers of home in the United States.

China’s rise to the top has been nothing but remarkable. Chinese investment in U.S. residential real estate has grown from a measly $50 million in 2000 to an eye-popping $28.6 billion in the year ending in March 2015. That’s an increase of 72 percent from a year earlier — double the amount spent a year earlier — that surpassed all other foreign buyers.

Chinese buyers made up 16 percent of international buyers. Canadians made up 14 percent of overseas buyers. Mexican buyers ranked third, accounting for 9 percent of foreign buyers.

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NAR reports that overseas homebuyers spent a record $104 billion buying U.S. homes this past year (ending in March 2015), with Chinese buyers leading the pack. In the 2014 survey, foreigners spent $92 billion on U.S. homes over a 12-month period, up 35 percent from a year earlier.

Who are the top foreign buyers of U.S. homes?

Chinese buyers are now the biggest international buyers of U.S. real estate in terms of dollar volume, total units and average price paid, the Realtor group reports. According to the Realtor data, 76 percent of Chinese buyers pay cash.

Moreover, international buyers spent, on average, $499,600 on their home purchases compared with the overall U.S. average home price of $255,600. Chinese buyers spend the most, with an average price of $831,800 on their U.S. home purchases.

According to JPMorgan Chase, massive capital outflows from China have exceeded $450 billion in the past four quarters.

William Yu, an economist at the UCLA Anderson Forecast, said political and economic instability in China are growing concerns for wealthy Chinese. He said Chinese investors are hedging their bets to protect their wealth as the Chinese economy and the mainland real estate market shows signs of instability amid a growing anti-corruption campaign launched by Communist Party General Secretary and Chinese President Xi Jinping.

“China’s real estate market has peaked already,” Yu said in a telephone interview. “Their housing bubble has popped. For economic and political reasons, Chinese investors want to protect their wealth by diversifying their assets, buying U.S. real estate and moving money out of the country.”

Yu and other leading China watchers are sounding the alarm about the stability of China’s economy.

Foreign interest in U.S. real estate is growing

One of America’s pre-eminent China experts, David Shambaugh — a professor of political science and international affairs at George Washington University — warned in a recent essay in The Wall Street Journal that the “endgame of Chinese communist rule has now begun” and the Communist Party’s possible “demise is likely to be protracted, messy and violent.”

Shambaugh cited five phenomena to support his thesis; key among them were that China’s wealthy elites are moving their assets overseas and many are fleeing China or planning to do so soon.

In January, Michael Auslin, of the American Enterprise Institute, wrote an editorial in The Wall Street Journal quoting one of America’s most experienced China watchers who said, “I can’t give you a date when it will fall, but China’s Communist Party has entered its endgame.”

“China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble. In 2014, Shanghai’s Hurun Research Institute, which studies China’s wealthy, found that 64 percent of the ‘high net worth individuals’ whom it polled — 393 millionaires and billionaires — were either emigrating or planning to do so.

“Rich Chinese are sending their children to study abroad in record numbers (in itself, an indictment of the quality of the Chinese higher-education system),” Shambaugh said.

Shambaugh, Auslin, Yu and other Sinologists fear that China’s economy is losing momentum — and millions of wealthy Chinese are voting with their feet. Millions more will follow their steps if the economy stumbles with many of them buying U.S. properties. And the NAR survey confirms the rising capital flight.

See where foreigners are buying U.S. real estate.

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Octavio Nuiry is the managing editor of RealtyTrac.

Email Octavio Nuiry.