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Chinese Pull Back From U.S. Property Investments

















 http://www.wsj.com/articles/chinese-pull-back-from-u-s-property-investments-1448649226




 
By
Laura Kusisto And
Alyssa Abkowitz


Updated Nov. 27, 2015 1:36 p.m. ET









Karen Xu, a Shanghai resident looking to invest in U.S. real estate, decided this spring to seek a Miami one-bedroom condominium in the $500,000-to-$750,000 price range.




 China’s economic slowdown has since changed her mind. “I don’t think I’ll be investing in the U.S. right now,” said Ms. Xu, who works at an investment consulting firm. 




“Maybe I’ll wait another five years, or invest in China.”



Capping a five-year real-estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year that ended in March—the most recent annual data—scooping up everything from $500,000 condos in New Jersey to $3 million vacation homes in California to $13 million Manhattan condos.




But in recent weeks, some Chinese buyers have started to pull back, scared off by China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows. 




On Friday, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.




 “We are ready to embrace a winter for Chinese buyers in the next one year, two years,”
said Daniel Chang, a New York City-based broker at Sotheby’s International Realty. Mr. Chang, who sells properties in the $2 million-to-$10 million range, said about half of the clients served by his team are Chinese.




 Christina Shaw, a Realtor with Re/Max Fine Homes in Newport Beach, Calif., said one client who gave her a budget of $10 million to buy two houses in the area was now looking to reduce his budget by about one-third.




Interest from Chinese buyers “went dark” for several weeks after stocks began their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, California. 




China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak.




Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to “pause and think.”





Zhang Xin, chief executive of SOHO China Ltd., a real-estate developer, said last month she wouldn’t buy overseas real estate today because many cities abroad are too pricey.





Real estate consultants and brokers say the pullback likely is temporary. Many Chinese view U.S. real estate as not only a good investment but as a haven for savings. 



Some Chinese buyers also figure a U.S. address would make it easier for their children to enroll in an American college.






“In the very short term there will be some impact for people who don’t have a foreign income stream or who don’t have a bank account or funds in overseas banks,”
said Frank Chen, executive director and head of research at property consultancy CBRE China. “But the outbound real-estate investment trend is likely to remain quite strong.”


Still, even a temporary pullback could hurt markets where Chinese buyers target some of the priciest American homes, often paying in cash. The average purchase price of existing homes in the U.S. by foreign home buyers in the year ended in March was nearly $500,000, nearly double the price for all buyers, according to the National Association of Realtors. 


One-third of Chinese purchases were concentrated in California for the year ended in March, according to the National Association of Realtors, trailed by Washington, D.C., with 8% of purchases, and New York, at 7%.




The Chinese are attracted by many of the same qualities as local buyers: good schools, good location and a good value, compared with prices in Hong Kong, for example.





Home builders also could feel the effects. 


The chief executive of Walnut, Calif.-based Shea Homes, Bert Selva, told investors this month that the company has seen a “significant slowdown” in Chinese buyers in Orange County.




“That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit,”  he said in a conference call.




Chinese and other foreign buyers have helped reshape the American real-estate market, driving up prices for homes in Southern California suburbs, skyscrapers looming over New York’s Central Park and residences in such college towns as Cambridge, Mass., brokers and economists said.



Buyers from mainland China, as well as those from Hong Kong and Taiwan, spent $28.6 billion in the year that ended in March on U.S. home purchases, according to estimates by the Realtors.



 While that accounts for just over 2% of American home purchases by dollar volume, the percentage is much greater in the high end of the housing market in such cities as New York, San Francisco, Los Angeles and, increasingly, Miami, according to the association.




In Southern California, they have been eager property investors in the San Gabriel Valley in Los Angeles County and in Irvine in Orange County, each with a substantial Asian population.




Chinese residents began buying American homes in large numbers about five years ago, driven largely by growing wealth and a desire to safeguard savings against political instability, brokers and economists said.



American homes looked like a bargain after the real-estate crash, drawing busloads of Chinese buyers to see properties in California and Manhattan.



 To many, it seemed “a gold mine everywhere,” said Calvin Lo, a real-estate agent at Berkshire Hathaway HomeServices in Southern California.



To sate that demand, U.S. real-estate brokerages now hold conferences with thousands of attendees in China, and such Chinese property portals as Juwai.com, advertise U.S. properties and other country listings. “Over the long term, the stock-market gyrations reinforce preference for international investment,” said Simon Henry, co-founder of Juwai.com.





Chinese individuals are limited to annual overseas investments equal to about $50,000. For years, Chinese have surpassed that limit, in part, by funneling money through relatives and employees. In recent months, the government has made it tougher to transfer money abroad, said real-estate brokers in both countries.




“It’s like barbarians at the gate,” said John Chang, a real-estate broker with Re/Max in New York City. Chinese families want to buy, he said, “but they just can’t get the money out.”


Yang Bin, a 38-year-old businessman from Beijing, said the economic slowdown has stoked his desire to purchase a home in Silicon Valley.



 “I see many problems with Chinese universities, and the environment and air quality here aren’t very satisfying,” Mr. Yang said. 



With a budget of about $1 million, he said he wanted to buy a home that his now-8-year-old child would one day occupy.




For now, Mr. Yang is caught in the dilemma prompted by China’s economy, which, he said,
“has increased my desire to buy a house in the U.S., but also requires me to wait and watch more carefully.”





—Krystal Hu and Kris Hudson contributed to this article.

Write to Laura Kusisto at laura.kusisto@wsj.com and Alyssa Abkowitz at alyssa.abkowitz@wsj.com






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