I want to share an article from our last issue of A|R|E Magazine that discusses China’s rise to the top in international investment in US property. Even with an economic slowdown, it appears that China’s desire for a safe and reliable place to invest its money has no signs of stopping. In fact, they’re on pace to shatter records for foreign direct investment this year not only in the US, but in Europe and Africa as well.
It’s a fascinating read by the always articulate Cynthia Fauth, and provides a great deal of insight into the current state of the foreign investment market. Have a read, and follow the link at the bottom to view in the magazine (it will have all the charts and graphs and beautiful designs by our very own Praveen Sharma).
China: The New Leader
By Cynthia Fauth, National Association of REALTORS®
Standing strong as the second largest economy for several years running, China has cemented its role as an economic superpower. The country is now home to more than one million millionaires, and according to UBS and Pricewaterhousecoopers, China created a new billionaire every week in the first quarter this year – a staggering statistic.
As China’s private wealth increases, so does its collective appetite for strong investment opportunities. What better investment than purchasing real estate in one of the most secure and attractive locations in the world – the United States? This year, China flexed its buying power muscle and, for the first time, exceeded all other buyers of U.S. real estate, according to the NAR 2015 Profile of Home Buying Activity of International Clients.
As a whole, the number of homes sold to international clients declined from an estimated 232,600 houses to 209,000, a decline of approximately 10 percent. However, the total dollar sales volume to international clients increased to $104 billion from April 2014-March 2015. This represents a 13% increase from the previous time period.
Sales to Chinese buyers accounted for approximately 28% of that total, equaling an estimated $28.6 billion.
Perhaps most staggering is the average home price purchased by Chinese buyers: $831,800. This is the highest among the top 5 countries of origin, and nearly $360,000 higher than the second place buyers.
Beyond that, Chinese buyers overwhelmingly prefer all-cash transactions, eliminating one of agents’ most-cited reasons why international transactions fail to reach the closing table.
Only Canadian buyers paid cash more frequently (73 percent) than Chinese. The United Kingdom paid cash 58% of the time, Mexico 46% of the time, and India only 16% of the time.
Why they are buying in U.S.
Stable, secure investment
The United States is considered one of the most secure and attractive locations for foreign investments and owning property. The Economist shows that the United States provides a better value in home prices than China. And according to the annual survey of Association of Foreign Investors in Real Estate (AFIRE) members, the U.S. was voted the most stable and secure country for investment, outstripping both second-place Germany by 55 percentage points, and third-place U.K. by 60 percentage points. The U.S. also offers the best opportunity for capital appreciation, out-performing second-place Spain by 34 percentage points and third-place U.K. by 40 percentage points. What’s more, two-thirds of the AFIRE survey respondents expect China to become the largest source of capital into the U.S. in 2016 and beyond.
The number of Chinese students arriving in the United States continues to rise each year. According to the Institute of International Education, 274,439 students from China were studying in the United States in the school year 2013/2014, a 16.5% uptick from the previous year. China remains the leading country of origin (for the fifth consecutive year), making up 31% of all international students in the United States.
Many of these young scholars will come to the U.S. in high school or college, and will make America their long-term home. As a result, they (and their parents) often invest in more than tuition. For Chinese buyers, finding quality housing for their children is a priority, and this investment can also serve as a rental property or vacation home when the student has moved on.
Where they are buying
Chinese buyers strongly focus on top-tier cities, primarily on the West coast. In fact 35% of home sales to this group were located in California, which provides geographic proximity to their homeland, educational opportunities, and business and trade opportunities. Los Angeles, San Francisco, and Seattle are top targets for property purchases, though Houston and New York are popular as well.
They overwhelmingly purchase properties in urban and suburban areas, according to the Profile. 46 percent purchase in suburban areas, while those looking for central city or urban properties aren’t very far behind, at 39 percent.
What they are buying
The vast majority – 39 percent – of reported purchases were primary residences. Residential rentals made up 23 percent of the purchases, while vacation and residential, and student residences were also cited.
Buyer interest mostly focused on detached single-family homes, with condos/apartments coming in second place. Commercial properties and townhomes were cited less frequently.
Reaching the Closing Table
About 43 percent of respondents reported they had at least one client who did not purchase a property. REALTORS® reported that meeting the needs of the international customer frequently requires an additional level of skills beyond those normally used by REALTORS® such as cultural training, informational needs of individuals not familiar with U.S. business practices, and experience with regulations as they pertain to international purchases. For example, foreign nationals might be unfamiliar with condo HOA fees and property taxes. This is an opportunity for the REALTOR® to deliver their expertise and educate the potential purchaser to reduce buyer concerns. The Certified International Property Specialist designation from NAR can help ensure that you are a true specialist in the field of international real estate, and can anticipate the needs of foreign clients to make sure you reach the closing table.
As China continues to make its mark on the international real estate landscape, it’s more important than ever to be educated, engaged, and informed on this lucrative buyer group.
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