What do London, Paris, and Dubai have in common? Aside from being the most popular cities in the world to visit, none of them are the new hotspot for Chinese real estate investors. In fact, through an impromptu IP search, Amy Bohutinsky, chief marketing officer at Zillow found that the second most popular United States search destination for users in China was Bellevue, and the fifth was Seattle.
Wondering how the greater Seattle area became so popular? It provides “luxuries” that China is lacking- clean air, space to move around, and the opportunity to own land. “In China, you purchase a land lease and after a certain amount of time, usually 75 years, the land goes back to the government,” explained Director of New Markets Development for Berkshire Hathaway HomeServices Northwest, Joseph Ho. Beyond their attraction to Seattle’s culture and environment, Chinese investors are seeking offshore financial stability. This stability is of growing concern, following China’s recent stock market dive. In January, “the Shanghai Composite Index dropped 3.6 percent, putting it more than 20 percent below its December high and entering bear-market territory for the second time in seven months,” according to Bloomberg News.
Although China’s currency has devalued in response to their roller coaster stock market, further investments are not projected to slow. In fact, Chinese investments may actually accelerate, as investors are noticing returns of five to eight percent within the past year; compared to the alternative of leaving their money in China.
To prevent capital flight, the Chinese government has an annual foreign conversion limit of $50,000. How are they purchasing real estate in Seattle? “People with money find ways around that limit,” Kristi Heim, president of the Washington State China Relations Council explained. In fact, there are incentives if they do. Through the EB-5 visa program, foreigners are provided with a way to obtain their green card and immigrate to the United States in return for a capital investment of $500,000-$1,000,000 in an American development that will create ten permanent jobs.
According to the National Association of Realtors, for the first time, Canada has been knocked down to the second largest group of foreign real estate buyers in the United States. Who surpassed them? You guessed it, China.
Not only are Chinese investors purchasing an abundant amount of real estate in the United States, but between March 2014 and March 2015 buyers from China spent $28.6 billion; eight percent of which was used to acquire homes in Washington State, which was only surpassed by 35 percent in California. As a distant comparison, buyers from Canada spent $11.2 billion, though only falling behind China by two percent in terms of buyers.
For decades, buyers from China set their sights on Vancouver, British Columbia, pushing the average single-family home price to over $1 million despite the city’s median income of $71,000. Another result of this craze is an increasing amount of neighborhoods filled with vacant houses due to investors who are solely interested in diversifying their portfolios.
How does this impact your own real estate journey? Chinese investors are willing to excessively overpay for these properties with cash, making it nearly impossible for locals to acquire homes. Since this influx of investors is not projected to slow anytime soon, you will need to be well-armed if you are looking to purchase a home.
Today's blog courtesy of Will Heaton, Heaton and Dainard, Intrust Investing