AgentInternational

How high home prices in China affect you

What happens when Chinese families can't afford to buy property at home in China?
  • Chinese families are being squeezed at home by high real estate prices.
  • This push factor is helping drive Chinese investment in US property.
  • A stronger US dollar will not counter this trend, because the dollar is still relatively cheap from the Chinese perspective.

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Increasingly, the answer is that they buy real estate in markets like yours across the United States, which is their most popular destination for real estate investment. China’s high home prices are creating opportunities for agents in the U.S.

In 2015, Juwai.com estimates that Chinese buyer transactions generated about $1.71 billion in commission for American real estate agents.

Fortune magazine has reported that Chinese average new home prices in February climbed at their fastest rate of increase in almost two years. In the southern business hub of Shenzhen, Bloomberg said that prices have surged more than 50 percent over the past year.

Motivation to buy in the US

As one keen China observer said, “Prices in first-tier cities are very expensive now; it’s hard for new families to afford a home.”

These high prices are one reason Chinese have become the world’s biggest foreign buyers of U.S. real estate. Fear of a bubble at home pushes them to look in the U.S. for property that is more stable, is lower priced and offers better yields.

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One buyer who used Juwai.com to connect with an agent in Texas ended up purchasing a house near the Texas Christian school where his 16-year-old son is studying. It is not the family’s primary residence and since buying it about 18 months ago, the family has occupied it only three times for a total of about 40 days.

Why did this family purchase a home in Texas that they don’t really need? After all, they could just as easily and more affordably stay in local hotels when visiting their son.

Like most Chinese, this family considers property investment their most significant wealth protection strategy. Real estate in the U.S. offers better value than Chinese property. It also offers the benefits of enabling international diversification of their savings.

This is all very well, but I have heard some industry leaders worry that foreign buying in the U.S. will decrease if the dollar gains value because that will make American homes more expensive.

For Chinese buyers, however, even a stronger dollar would not be dissuasive. U.S. prices are low compared to prices in China’s cities. Besides, the U.S. dollar’s recent gains have reversed less than a third of the buying power the Chinese yuan gained in in the past decade.

Few Chinese buyers are discouraged by today’s dollar because — in their frame of reference — it is still incredibly cheap.

More than square-footage

In Shanghai, Knight Frank says that $1 million will buy you just 495 square feet of prime residential real estate. By comparison, in Los Angeles and Miami it buys 700 square feet and 829 square feet, respectively.

All of this translates into demand for U.S. property. According to the National Association of Realtors, Chinese invested about $28.5 billion in U.S. residential real estate last year. Our data shows that their top cities are Los Angeles, New York, San Francisco, Seattle and Houston.

Why do they buy? Well, they tell us it’s for the education of their children, the lifestyle offered by a non-primary residence and for emigration.

But even if all of these factors play a part, underlying the decision is always the idea that an American home is a safe, long-term place to protect and grow their wealth. As long as that impression endures, so will Chinese demand for U.S. real estate.

To help you benefit from this demand, I’ve provided this advice for working with Chinese buyers:

4 tips for reaching Chinese buyers

1. Respond to inquiries quickly

This is imperative, probably more so with offshore Chinese buyers than with local buyers.

2. Translate your listings

Do a professional job of it and consider this a minimum for effective marketing to a foreign buyer group.

3. Visit China

There you can meet with people on your inquiry list and attend lead-building and relationship-building events. You will be amazed by the lessons you learn and the doors you open to greater opportunity.

4. Take every inquiry seriously

As much as one-third of Chinese inquiries comes from a friend or family member acting on behalf of the actual buyer. This intermediary might be surprisingly young or unprepossessing in other ways. Often, however, they play a decisive role in deciding which property is acquired.

Learn Chinese buyers’ unique preferences. Many Chinese place a strong emphasis on safety, shopping, entertainment and education when looking for homes. Knowing this can help you serve them better.

Matthew Moore is president of the Americas for Chinese international real estate website Juwai.com. You can follow him on Twitter or Linkedin.

Email Matthew Moore.