When the Chinese economy was stronger, wealthy residents sought investments outside China. With the Chinese economy and stock markets faltering of late, you might expect international investment to be slowing. It’s not. In fact, the Chinese are even more galvanized to move money outside China and into what are viewed as more stable economies before the situation in China deteriorates further. Depending on your viewpoint, selecting the US as one of those “more stable” places may prove a more controversial pick.
The recent wave of investment has been concentrated on large cities in US coastal states. Investment is now moving into the Midwest, particularly Texas (Candysdirt.com has covered Chinese buying since 2013 here, here and here). Our economy and tech sector are listed as some of the main drivers.
Real estate is viewed as a good investment for several reasons. First, all property in China is leased for a maximum of 70 years; the United States’ “own forever” property right is appealing. Secondly, the educational prospects for children are important. In 2015, there were 250,000+ graduate and undergrad students from China in US schools and many parents purchased homes for their student children. Asian families are very focused on their children’s educations. Third, while the Chinese government has eased some regulations on overseas investment, they have the instant ability to shut off the tap and they’ve also been known to be capricious in personal asset seizures. Finally, large purchases, couched as job-creating investments, shave years off the time it takes to gain a Green Card.
In the US, there is a visa program called EB-5. It’s different than the H-1B visas we typically hear about in the technology sector that are based on employment and are of limited duration. The EB-5 visa fast tracks a Green Card to investors who place $1,000,000 into a business that creates at least ten jobs ($500,000 if the investment is located in a “Targeted Employment Area”). Instead of waiting years, EB-5 visa holders get an immediate two year visa. This is surely one of the reasons the Chinese spend so much on homes that are part of developments (where the developer employs more than ten people to build the community, this counts). In the past year, 86% of all EB-5 visas were granted to Chinese applicants. That’s why investors in the 108-acre Long Lake development in Corinth, Texas with homes costing $1+-million seem tailored to qualify owners for EB-5 visas.
Consequently, the Chinese are big real estate spenders, snapping up 7% of all home sales over $1-million nationwide and spending $28.6-billion from March 2014 to March 2015 on real estate, an increase of 49%. The National Association of Realtors pegs the average Chinese purchase at $831,800 – a heck of a lot more than average.
Of course 35% of Chinese buyers are purchasing in California, the only state with a double-digit percentage of the Chinese buying pool, while just 4% are currently eying Texas (tied for the fifth position with Illinois). However as China’s economic growth plateaus’, less expensive US housing markets (like Texas) should see a clear increase with buyers less able to splash out on $1m homes.
Cash is king with 69-percent of Chinese purchases being all cash with their blindingly fast closes. For the average American buyer who requires a mortgage, this spells trouble. Chinese cash offers float to the top of the pile. Bidding wars have erupted between cash buyers. The Chinese are even thwarting buyers from Mexico, causing their growth to level off. Mexicans have historically represented the largest portion of overseas buyers in Texas.
Before you think the Chinese boom is new, but it can be traced back to the 1980s, when Texas Instruments opened manufacturing in Taiwan. Over time, cross-pollination saw students coming to Texas for school. Richardson is still a hub for the Chinese community in North Dallas (along with Plano that has seen Chinese-born citizens more than double since 2000). Unofficially this Richardson/Plano vortex can be seen in D Magazine’s April issue featuring “The Best Dim Sum in Dallas.” Three of the five restaurants featured were in Richardson/Plano (including my favorite, JS Chen’s in Plano).
It’s not just residential real estate that’s feeling the China effect. With easing regulation, the Chinese government now allows insurance companies to invest 15% of their assets outside China. At the end of 2014, just 1.44% had been shifted overseas. While the recent Chinese buyers who spent $1.3-billion in the oil fields of the West Texas Permian Basin were not insurance companies, the US definitely needs to brace itself for an influx of commercial investment also.
What does this mean for agents? Once again, your internet presence is more than vital. Parlez-vous Mandarin? (你会说中国人吗？)
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