Based on CBRE, the Chinese are the largest group of outbound Asian real estate investors in 2016. The National Association of Realtors (NAR) also indicated that Chinese have become the largest group of foreign buyers of American real estate.
However, new foreign exchange regulations in China are currently making it difficult for Chinese buyers to invest in the U.S. real estate market. As such, real estate agents will need to find an effective approach toward this group of foreign buyers to continue to close deals.
3 things U.S. agents should know
There are three key points that American agents should know today:
1. China has new foreign exchange controls in place
The foreign exchange regulator in China, State Administration of Foreign Exchange (“SAFE”), announced a new policy on Jan. 1, 2017 requiring more disclosures of Chinese citizens who are looking to buy foreign currency.
Banks in China are now very diligent in following these measures before issuing any foreign currency to Chinese citizens. This is putting a brake on the amount of money that Chinese can transfer to overseas countries.
Our member agents across the U.S. have been reporting delays in real estate transactions, and often a drop in transaction volume.
Not surprisingly, many Chinese investors have become very concerned about these new foreign currency control measures, and they have started looking more aggressively for other ways to obtain American dollars.
Some are indicating that the more controls the Chinese regulator is imposing, the more Chinese citizens will look for ways to get the money out of Mainland China.
Furthermore, agents should understand that Hong Kong (though it is technically part of China) still has a free market and is open for capital flows. As such, all people with residency and bank accounts in Hong Kong can continue to purchase American dollars and continue the purchase of U.S. real estate.
2. Trump effect
Yes, there is a Trump effect; actually, there have been two effects.
The first effect was the first two months after the election in which we noticed a positive trend of Chinese looking to invest in the U.S. real estate market.
The second effect occurred in late January after the Trump administration announced a travel ban on people arriving from seven different countries, which was suspended by a federal judge. The president’s second attempt at the ban will go into effect Thursday.
The order has created a wait-and-see mode here in China based on numerous interactions with investors. This is not a positive trend for the U.S. real estate market or agents at the moment.
It remains to be seen how the policies of the Trump administration will affect the behavior of Chinese (or any overseas) real estate investors.
3. China gets a new billionaire every 5 days
China creates one new billionaire every five days and, more importantly, China’s middle-income class is rising. It is estimated that there will be more than 74 million Chinese earning more than $32,100 USD in 2020.
Of those individuals, millions will earn significantly more and will be well-positioned to acquire U.S. real estate.
Implications for US agents
While the foreign exchange regulations and Trump are creating uncertainty, agents should enhance their relationships with Chinese clients. With a market of millions of Chinese looking to buy overseas real estate, it is a massive market to go after.
WeChat is probably the most effective tool for doing this through sharing updates on your local real estate market and pictures of listings. Building your brand is a great mechanism to get in front these high-net-worth clients so you are the first one who they contact when they are ready with American dollars.
A large number of Chinese are still submitting inquiries, and a growing middle-income class market is a positive sign as well.
Hong Kong is again becoming an important destination for everyone looking to close deals in the U.S. real estate market. Many Mainland Chinese investors are in the process of setting up bank accounts in Hong Kong, and many agents are traveling to Hong Kong to target those investors.
Millions of Chinese will become rich over the next few years and will look for American homes. It is up to agents in America to start positioning themselves for this huge wave while the Chinese government is controlling the gates — for now.
Sam Van Horebeek is a director at East-West Property Advisors, a U.S. real estate platform based in China. You can follow on Facebook and Twitter.