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Figuring Out Chinese Buyers

There is little doubt Chinese buyers had a major influence on our real estate recovery. If nothing else, their impact is even greater today. It is growing, in spite of the on-going troubles affecting their economy, their stock market and their currency. The impact is particularly true at the high-end, the segment of the market which eventually pulled residential real estate out of 5 years of misery. Although many parts of the country benefited from the Chinese buying spree, one state enjoyed the lion’s share of the money flow: California (LA, San Francisco-Peninsula-Silicon Valley).

Last year, a Chinese broadcasting entity, NTD, sent me some info on the Chinese purchasing power on our soil. It is impressive. It shows that, in California alone, more than 50% of homes sold to foreign buyers went to Chinese nationals. Next came Vancouver, New York, Seattle, etc.

I feel like saying “Thank you, we needed that”. In the past, I wrote a couple of blogs on the Chinese buying phenomenon. This time, I thought useful to go deeper into the “who, the why & the how” to bring more light on a subject which, amazingly enough, is still largely ignored. Indeed, few people understand such phenomenon enough to talk about it. I picked the brains of a handful of them. Here is the result, in the form of a Q&A:

Q- Why are the Chinese coming to the US?
Historically, the US has always been destination No. 1 for Chinese immigrants. The US has a reputation of being racially tolerant, culturally diverse, politically & economically stable and a country that believes in the rule of law. California is particularly attractive because of the high concentration of Chinese immigrants, ethnic stores & restaurants, a mild climate, a vibrant business environment, a high level university education and non-stop flights to SFO & LAX.
In recent years, the main driver has been education. The Chinese, not unlike other parents, want the best education for their kids. According to Rupert Hoogewerf, chairman of the Hurun Report, the “Big 2”, UK & US combined get 55% of the overseas Chinese high-school students. Next come Canada (12%), Australia (9%).
Other reasons for buying in the US: healthy food, medical care, less pollution, social welfare, etc.
Q- Who are the Chinese buyers?
Business owners, entrepreneurs, and a small number of government officials.
Q- Why are they buying here rather than in China?
Most of the buyers already own substantial real estate in China. When the US market hit the bottom during the financial meltdown, some of the buyers cashed in on their properties in China and came to the US bargain hunting. It turned out to be a pretty good idea since the Chinese real estate boom over the last few years created a huge bubble which is now causing there some of the same financial problems we experienced in the US. Some of the buyers are looking to diversify their holdings while others have children in US high schools & colleges and, to them, buying a home is an investment in their kids’ future.
Q- Where is the money coming from?
There are over 3,000,000 US$ Millionaires in China and 650 US$ Billionaires (more than any other country). The sources of funds used to buy in the US vary. Some come from business ventures, real estate investments or stock market gambles (before 2015) and some come from business or political payoffs.
Q- How do they manage to get millions out of China and into the US?
While it is true that the Chinese can theoretically only get $50,000/year out of the country, many manage to collect enough from family members, friends, associates, employees, etc. Also, many are able to circumvent the restrictions through intermediaries, such as foreign companies doing business in China, domestic companies engaged in foreign trade, Hong Kong entities, underground money exchanges and offshore bank accounts. When you have money, you find ways.
Q- Are the Chinese free to buy and/or sell real estate in China?
Generally speaking, yes, although the concept of ownership is a bit different from what it is in the US. Even though a person may own an apartment for example, in most cases the land on which the apartment building is located is leased from the government, typically for 50 to 75 years. In addition, there are restrictions on who can purchase as well as the number of apartments a family can purchase. One more caveat: In big towns like Beijing and Shanghai, would-be buyers must deal with minimum residency requirements imposed by the city to get the green light.

Q- What type of residential properties/investments are Chinese buyers focusing on?
The Chinese tend to hold properties as long term investments. They buy and rarely sell. Their main focus is the high-end. Like their counterparts in the US, wealthy Chinese consumers are enamored with Western luxury brands, be it a home, a car, a watch, a handbag, or whatever. The preferred brands are Hermes, Apple, Louis Vuitton, Chanel, Gucci, Cartier, Prada, etc. (My wife would not disagree with the choices). It is not only about the experience, it is also a status symbol.
Q- Being that Chinese buyers are reluctant to share financial info, how can we qualify them?
We need to know their background and holdings, not necessarily their bank statements. That’s a challenge. Good luck.
Q- Do Chinese buyers prefer working with Chinese Realtors?
Most prefer a Chinese Realtor because of the common language and cultural background, but only so long that such Realtor is knowledgeable about the business and the local real estate market. A small percentage of buyers may prefer working with non-Chinese agents for privacy reasons.

Alain Pinel

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