China’s capital flight: to US real estate

To the rising flow of anecdotal evidence suggesting China’s rich are taking their money out of the country, add this: China is now one of the fastest-growing sources of international buyers for US real estate.

According to a report published by the National Association of Realtors this week, buyers from China and Hong Kong made up the second largest group of foreign buyers of homes in the US in the 12 months to March – behind only Canadians – accounting for $9bn of sales.

That’s a 23 per cent increase on the $7.3bn of sales they notched up in the previous 12 months and a whopping 88 per cent increase from $4.8bn of sales in 2010.

“International Chinese buyers are seen as a very desirable market by real estate agents at the moment,” Jed Smith, managing director at the NAR, told beyondbrics. “The strongest growth is coming from China and the rise of Chinese buyers has made up for declines in sales from buyers from the UK and Mexico.”

To be sure, sales to international Chinese buyers still represent just a sliver of the overall US market, which recorded $928.2bn in sales in the year to March.

But at that top end of the market, it’s a different story.

As the chart shows, China accounted for 11 per cent of international sales in volume terms in the year to March, the same as in the previous year. The 23 per cent jump in sales value, despite flat sales volume, suggests that Chinese buyers have been active at the top end.

Source: NAR

Indeed, Pamela Liebman, chief executive of The Corcoran Group, a residential real estate brokerage company, says the group has seen a “huge” influx of wealthy mainland Chinese shopping for high-end properties in New York since the start of the year.

“It’s extraordinary,” she says. “Five years ago, we never talked about Chinese buyers. We started noticing them 18 months ago but they have only become much more prevalent in the past year.”

Liebman says she saw “hundreds of millions” of dollars in sales last year to Chinese buyers and the pace has intensified since the start of 2012. “The past quarter has been our best quarter ever in terms of sales to Chinese buyers.”

Properties that have been snapped up by China’s rich range from $1m apartments to $20m trophy properties. “Buying groups” – group tours of mainland buyers coming to New York to view properties – have become commonplace, says Liebman.

“It’s a market that we are now targeting heavily,” she says. “We have been recruiting Mandarin-speaking agents and have launched affiliations with brokers in China.”

Her view is echoed by Gregg Lynn, Sotheby’s International Realty agent in San Francisco, who says he has seen a marked increase in mainland Chinese buyers over the past year.

“California has always been popular with Asian buyers,” he told beyondbrics. “But whereas before it was mainly buyers from Taiwan, Hong Kong and Japan, now we are seeing more mainland buyers visiting.”

Reasons for purchases vary, say those who have dealt with overseas Chinese buyers. Some are buying because they want to emigrate or they have children who will go to school in the US. More and more Chinese millionaires are looking to settle in the US or at least secure residency rights.

Others buy because the numbers add up: the renminbi is relatively strong against the US dollar and property prices are cheap compared to Australia or Canada. Others are simply looking for somewhere safe to park their cash.

In a year that has seen China rocked by political infighting at the top and mounting evidence that the economy is heading for a bigger-than-expected slowdown, EB-5 – a little-known programme that gives a green card to any foreigner who invests at least $500,000 in a business creating 10 or more jobs in the US – received a record 1,675 Chinese applications during the first quarter.

That compares with 2,408 applications in the whole of last year, 772 in 2010 and 63 in 2006.

“There is no doubt that the political situation back home is having an impact on how China’s rich are thinking of perserving their wealth,” says Liebman.

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