Investment Properties

Why Chinese investors are pouring money into US real estate

No, Paul Revere didn’t yell that — rather, it’s what some real estate market makers are saying as a result of the China being in the red (no pun intended).

With a recent precipitous drop in its stock market, the aftershock has lead to an upswing in purchase contracts being inked for American real estate.

The inverted exodus of capital flow from the Chinese is a natural phenomenon because money typically flows outward from a countries’ border when economic calamity is either actual or perceived. In this case, it appears to be just a burp.

Who’s to blame for this trend? Try not to say Donald Trump — that’s too easy of a punchline these days. And if you’re using that line, you’re not likely as hip as you think you are.

Investment Properties

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Industry watchers have stated that the sudden collapse in the Shanghai Composite, along with the devaluation of the yuan over the past several weeks, might be a prophetic harbinger for U.S. real estate.

“Au contraire” say those who are bullish. In a classic textbook example of contrarian thinking and the unavoidable “yin and yang” of market movements, herds are not always followed. Other market watchers astutely point to the real-time capital outflows from a troubled China that are going to the relative safety of American soil.

The capital outflows from a troubled China are going to the relative safety of American soil.

Given that Chinese stocks have crashed 40 percent since June and wiped away trillions of dollars in market value, this says a lot about Chinese staying power when it comes to keeping their chins up and going elsewhere with their money.

“There’s a fear that Chinese buyers, who have been such a market maker in parts of the United States, may pull back,” said economist Jim Costello of Real Capital Analytics. “Those fears are a little unfounded.”

Costello — and others like him — points out that the resilience of Chinese capital is simply not poppycock, but is, in fact, real, based on the numbers.

According to one reputable online source: Commercial real estate isn’t the only type of property seeing large inflows of Chinese money. The country’s investors have also been active in residential realty.

They bought $28.6 billion in American residences from April 2014 through March 2015, accounting for 28 percent of all foreign purchases by dollar volume, according to data from the National Association of Realtors.

The homes they acquired tended to be on the luxury side; the average house in the U.S. sold for $255,600, but Chinese buyers spent on average $831,800 for their American homes.

The avg. US home sold for $255,600 — Chinese buyers spent on avg. $831,800 for American homes.

And furthermore, at least in the opinion of Jonathan Miller, president of the appraisal firm Miller Samuel based out of New York City, the turmoil in China might lead to more investment in American residential and commercial real estate.

“There are not a lot of investment vehicles in China,” said Miller. “You have the [Chinese] housing market, which is a pretty significant bubble. You have thousands of ghost cities that have been constructed.

“On top of that, you have a pretty volatile stock market situation. So there is some speculation that there actually will be outflow as a result of this, and maybe that will end up in the U.S.”

Chinese citizens are starting to think money in the bank isn’t safe because it won’t gain any value if the renminbi is still devaluing, so people will look to real estate as a solid investment channel, said David Ji of Knight Frank, an international real estate agency.

One might ask oneself, what’s that got to do with the price of rice in China? Well, it has everything to do with China.

As it stands, Chinese investors are exceedingly active in many major markets, such as New York. They are coming in droves.

Chinese are the leading foreign buyers of American homes. In fact, as stated earlier, they represent 28 percent of all homes purchased by foreign buyers last year.

Chinese bought $28.6 billion in American residences — 28 percent of all foreign purchases.

What’s the takeaway? Market corrections do work. And to the benefit of high-end American homeowners and their commercial property owner counterparts, the presence of Chinese buyers are a welcome sight.

Source: Inman.com