The prominence of the number eight here is likely no coincidence. Both listings are found on Juwai, one of the largest online portals for Chinese citizens looking to buy property overseas (the name translates to “living abroad”). And the number eight, according to Chinese superstitions, is
As China furiously erects high-rises for its ever-growing population, wealthy mainlanders have been seeking out the
American dream in the suburbs of… well, America. Not even the harshest of anti-immigrant rhetoric in the U.S., nor the toughest of foreign investment regulations from China, has substantially deterred them. At least not yet.
“Many Chinese who grew up in the high-rises of those big cities in China see having a backyard as an attractive [alternative],” says Lawrence Yun, chief economist and head of research at the National Association of Realtors (NAR). Single-family homes are also more attractive to Chinese investors, he adds, because they’re generally more abundant than affordable condos in popular destinations like Los Angeles and New York City.
According to a recent
report by NAR, Chinese buyers have been the top foreign buyers of U.S. residential property for three straight years, hitting a record high. As a group, they surpass top buyers from Canada, the U.K., Mexico, and India. Between April 2016 and March 2017, Chinese buyers purchased more than 40,500 housing units, worth a total of $31.7 billion. That’s up from of 29,000 units and $27.3 billion the year before. Sixty-seven percent of those units were single-family homes, and 61 percent of all sales were made in suburban areas.
With housing prices on the rise, Chinese buyers are also looking beyond just California and New York, which have been popular thanks in part to the prominence of Chinese culture there. Texas, Virginia, Florida, and Indiana, for example, have become top destinations this year, according to NAR, as buyers expand their geographical reach in search of a better bang for their buck. And while
Washington state didn’t make it to NAR’s top destinations (NAR analysis actually found investment there declined), data from Juwai suggest that the top market so far this year lies in the greater Seattle area. The area saw an influx of foreign interest last year after neighboring Vancouver (another hotspot for Chinese investors) imposed a 15 percent tax on foreign buyers.
In particular, college towns have flourished over the years as Chinese students move to American colleges and their parents opt to buy rather than rent. “It's a perfect match,” says Susan Wachter, co-director of the Penn Institute for Urban Research at the University of Pennsylvania, referring to the growing wealth in China and the desire for an American education. “Instead of spending the money on rent for three, four years, why not just invest in property? You're going to come visit it anyway.”
The impact of foreign investors
Chinese investors are surely welcome business for sellers, who hope to attract buyers with customized homes adhering to
feng shui principles, and developers breaking ground on new projects, including luxury high-rises and McMansions catering specifically to that group. On average, Chinese buyers spent $781,801 on a home in the 12 months before March 2017—that’s more than $200,000 above the average spent by buyers from the next leading countries.
“The U.S. real estate market has always been out there as a risk diversifier [for Chinese millionaires and billionaires] who are quite aware about the potential for a bust in China,” Wachter says.
Wealthy buyers have even shelled out millions for a home (or multiple homes, many of which were bought for investment purposes and
sit empty), sometimes paying as much as 40 to 60 percent above the asking price—and often in cash. In fact, according to the NAR report, more than two thirds of sales made by Chinese buyers were paid in cash. That spells big business for smaller cities where a $200,000 home is on the higher end of the market—but bad news for American homebuyers.
And while the data isn’t
conclusive across the board, the influx of foreign buyers could play a role in limiting housing affordability. When it comes to the bidding process, for example, American homebuyers who require mortgages are no match for those who can dole out the entire payment in cash and close a deal in a matter of days. “The fact that the Chinese are buying more on the high-end markets perhaps means they're not directly competing with first-time buyers in the U.S.,” says Yun. “But the fact that they are gobbling up inventory just means they’re pushing the local housing market upward.” “Buyers are not giving up on L.A., Seattle, or New York.”
In Seattle, where housing prices have doubled in the past five years, growing twice as fast as the national average since 2016, officials have have considered a tax on foreign purchases—similar to the one that drove buyers to the area from Vancouver. The debate has even
made its way into this year’s mayoral battle, according to the Seattle Times. But asked if other American cities might follow those very footsteps, Yun says it’s unlikely that cities will deter foreign investment anytime soon. Cities, after all, can stand to benefit from the extra money collected through property taxes. China cracks down
Will China’s latest crackdown on money leaving the country put a damper on the Chinese pursuit of the American dream? Not likely, says Yun, though it certainly does have the U.S.—and global—real estate market on edge.
The new measures, introduced in January, toughen the enforcement on a long-standing regulation that limits Chinese buyers to exporting no more than $50,000 in a year. Among other things, t hey also tighten scrutiny over what people do with the money by requiring investors to disclose their plans. Banks are also instructed to deny transactions for overseas property purchases if illegal activity is suspected. This is partly intended to curb the record amount of cash leaving China’s borders and partly to stem the smuggling of billions of dollars overseas by corrupt officials and businessmen.
But Yun says the U.S. won’t see a huge slump in foreign purchases anytime soon, especially as China’s economy grows. Data from Juwai suggest that buyers aren’t fazed by the tighter controls: Searches for U.S. property actually
grew by 42.7 percent in February. For one thing, Chinese buyers have been pretty creative in skirting past capital control rules. “[A buyer] may have 10 neighbors send money abroad and combine them in the U.S. to buy that one property, and then he or she would repay those neighbors,” says Yun, referring to a (legal) process known as smurfing—though China’s new measures aim to close that loophole, too.
Still, Juwai has already detailed three workarounds for the latest regulations. One is for home buyers to pivot to more moderately priced homes, so it’s easier to put together the money needed for a down payment. The company’s data show that so far in 2017, searches have slightly increased for homes less than $500,000. The median price that property users searched for fell 15 percent, from $382,995 last year to $325,000 so far this year. That means these mega mansions built specifically for the Chinese may
no longer be a hot commodity. That could further affect the American middle class, but Yun says more data is needed.
Another loophole may be to scrap the convenience of all-cash payments and make use of mortgages. As for all those international students
who need to be housed during their stay in the U.S.? They and their parents make up a large part of demand for U.S. housing, and so far, the new restrictions are unlikely to affect them. That’s also the case for those pursuing EB-5 visas and those looking to make property purchases for medical care and holiday purposes, . according to Juwai
In terms of location, “buyers are not giving up on L.A., Seattle, or New York,” Sue Jong, chief of operations at Juwai, tells CityLab in an email. All three cities, along with Houston and Orlando—both of which have long seen growing demand from Asian buyers—are among Juwai users’ top five searches. “In fact, the top five cities received a slightly larger share of all inquiries so far in 2017 than in 2016,” she adds.
So for the time being, it looks like Chinese will continue to pursue the American dream—or for some, take advantage of it for investment purposes. But perhaps for some families, the seven bedrooms or additional sauna will no longer be in the picture.