Riding in the back of a taxi from Beijing Airport, Chinese real estate investor Yin Guohua told me he would be back in the US soon, and next time he would buy a house. Like 22 other Chinese investors, Yin had just taken part in a real estate "bargain hunting" trip to five US cities.
The trip – organized by leading Chinese real estate company SouFun – attracted a massive amount of media attention. As group coordinator I was besieged with interview requests from newspapers and TV stations. Even on the last day I was being begged to set up an interview by one of America’s largest TV networks for a news program with 8 million viewers.
But by then the group had decided to stop talking. Too much media exposure had already disturbed their privacy, leading half the group to abandon the trip and go home early. Real estate investors – and Chinese real estate investors in particular – tend to eschew being treated like movie stars.
The US real estate market is a real bargain for most wealthy Chinese. In Beijing or Shanghai, the average price for a condo is US$330 per square foot, with a 70-year lease. Yet in the best school district of Los Angeles, San Mariano, a new single-family house is US$240 per square foot, and the land is owned rather than leased. Unlike in China, the property is yours forever.
Add to this the fact that over the past 20 years, Chinese individuals have been accumulating personal wealth at a rapid pace.
According to Ma Weihua, CEO of Zhao-shang Bank, one of China’s biggest private banks, China has over 30 million people with investible assets in excess of US$1.2 million. It is little surprise, therefore, that Chinese real estate investors do not care very much about the tightened lending policies at US banks, because most of them don’t need a mortgage to buy a US$200,000 property.
I’ve had close involvement with many Chinese investors who purchased properties in the US, and often getting a return on their capital is not their primary goal. Chinese investors can generate returns of over 100% per year on investments they make at home; this is rare in the US market.
It is actually the social infrastructure of the US that has attracted Chinese investors: America has the best universities in the world and investments in the country hold their value well. Most Chinese invest in US real estate not for themselves, but for their kids and their family.
Many also have an eye on US residency. The US investment immigration program (EB-5) requires an investor to put US$500,000 to $1 million into a US business, and as long as it generates over 10 jobs over two years the investor can get permanent residency for his or her family. That said, typically just buying real estate cannot satisfy the government’s requirements for residency in the US.
The legal framework is also a factor in drawing Chinese investors to the US. In America, all real estate ownership documents, such as deed transfers, are public documents. So anyone can easily find out the owners of a real estate property by checking the records in a county court house.
In summary, the US real estate market has been sluggish for over two years but price is not the only reason why Chinese investors are interested in buying there.
Professional investor service providers need to identify Chinese clients’ needs, and this will enable them to tailor their approaches accordingly.
This article originally appeared in Global Property Investor, a China Economic Review publication.