It’s been happening in England, Australia and Canada, and now it’s the trend in the United States–wealthy investors from China are buying up American residential and commercial properties like never before. Going through the trouble of getting approved for a mortgage is no issue for these investors as 70% of them are paying cold, hard cash. During the last six years, the Chinese government has flooded their country with stimulus money, relaxed regulations on how much cash can leave the country, and increased the percentage of Chinese corporate holdings that can be held offshore. These factors have added up to a “perfect storm” for wealthy Chinese investors to buy up property all over the west, including the United States.
In a 2016 Inman.com report, Why Chinese Investors Are Growing in Number, a Chinese born real estate agent, Becco Zou, from Berkshire-Hathaway Home Services Northwest just tells the buyers to “Show me the money!” and they do, often for million dollar properties. In 2013, CNN Money cited that because the Chinese Gross Domestic Product has grown impressively over the last ten years, Chinese Investors have money to play the Real Estate game. This new wealth class views American property as a “stable investment”. The majority of these Chinese buyers spend less than half the year in the United States.
These savvy investors are not buying property because they wish to relocate to the United States, they buy it because they can. “Trophy Properties” are all the rage for the wealthy Chinese, who are enjoying new purchasing options granted by the new free market system.
Many buy these expensive properties sight unseen, or “on spec” to be built after the purchase. Some of these New York and LA properties are just used as a place to keep their shopping bags when they visit. If their children are going to attend college in the US, it makes more sense for these wealthy Chinese investors to buy a condo for them, or perhaps a community of them, to rent out to other students during their stay. Why rent a hotel room when you come visit your children in the US when you can have your own property close to campus? An education fund for a Chinese child now includes buying them a home away from home for their college years. New York’s West Side has especially seen a dramatic uptick in foreign investment, both residential and commercial.
A traditional jewel in the crown of New York, the famed Waldorf Astoria Hotel, was sold in 2014 for $1.95 billion to Anbang Insurance Group. The Hilton Group will still manage the hotel as in a “joint partnership”, with the Beijing firm. A New York Times story from November 28,2015, Chinese Cash Floods US Real Estate Market, details that it’s not just properties in New York and Los Angeles that are attracting cash buyers. The Chinese have outpaced Mexicans as foreign investors in Texas.
Although this property buying spree is good for community property tax rolls, it is not great news for the average homebuyer. The above mentioned New York Times article goes on the cite a case of a Real Estate broker who reported that his client was outbid on a modest Plano, Texas property that sold for $220,000. While the American buyer had secured a mortgage, as most American homebuyers do, the Chinese investor who won the bid had the same amount to pay in cash.
This trend is only growing stronger, as reported by CNBC in January, 2016, China Stock Swoon Could Boost US Real Estate. With 8.6 billion in commercial real estate purchased by Chinese investors in 2015, the buying trend is still hot. President Obama is encouraging this by signing into law a clause that waives a percentage of taxes on foreign investment funds, formerly mandated under 1980 Foreign Investment in Real Property Tax Act (FIRPTA). This adds to the many incentives attracting more Chinese to build and buy here in the United States.
Now instead of collecting antiques, those Chinese with old money, and especially the nouveau riche, see collecting a portfolio of commercial and residential properties as a business hobby that will secure their future, no matter how the Chinese market rises and falls. Their cash is most appreciated in the United States, and real estate brokers are lined up to greet them when they get off the plane, or realtors travel to China to present the latest land development deal, and watch the cutthroat bidding begin. With the advent of internet real estate showings, a land speculator in China can log on and snap up a residential property faster than it takes a cup of tea to cool. The fact that the Chinese are paying way above appraised value for residential properties, from gated communities to townhomes, may have surprises in store for future American homebuyers.
How will this Chinese buy up affect the average American homebuyer? If what happened in Great Britain is any indicator, a housing shortage will ensue, as many average homebuyers will continue to be priced out of the housing market. As early as 2100, The Daily Mail reported that Chinese land speculators are driving up prices to astronomical levels, keeping home ownership out of reach for many Britons. Now, with not enough homes to go around, a UK couple in their thirties is more likely to rent, than be able to buy an affordable home to start a family.
How the east and the west will fare overall as a result of this Chinese investment boom is still a big question. This buy up is reminiscent of the Japanese real estate investment boom of the 1980s, according to CNBC. The Japanese “wildly overpaid” for these properties and ended up victims when the housing bubble burst.
Unlike the sub-prime mortgage real estate disaster, the majority of these properties are being paid for by Chinese investors in cash. Still, the unexpected could send real estate prices crashing again, especially when many of the prices paid do not reflect realistic property values. For now, however, the Chinese are living the American real estate dream, even if many Americans can’t.