Local backlash driving Chinese buyers to USA

Yuan USA

AUSTRALIAN backlash against Chinese buyers is driving investors to the United States real estate market, where spending is forecast to reach $US218 billion over the next four years, according to a joint report by the Asia Society and Rosen Consulting Group.

The report, authored by Kenneth Rosen, Arthur Margon, Randall Sakamoto and John Taylor, said the relatively small size markets of Sydney and Melbourne have magnified the impact of foreign investors.

Whereas the United States is a much larger market, so the impact of foreign investors faces less scrutiny.

However, the report found Sydney and Melbourne, with Vancouver also feeling the wave of incoming capital.

“While there is often public scrutiny for commercial real estate investment, the most vocal opposition has been in the residential sector. The current wave of Chinese investment into Vancouver, like the wave from Hong Kong 25 years before, has caused intense public outcry against what many Canadians believe is speculative real estate investment by wealthy Chinese that is contributing to bubble-like conditions of inflated home prices and pricing out many local residents.

“Moreover, there are some legal concerns about the origin of Chinese funds; protestations that non-resident, property-owning Chinese evade Canadian taxes; and allegations of empty investment homes exacerbating the housing crisis.

“The same sentiment is seen in Sydney and Melbourne and is even translating into more difficulty in the lending market for Chinese to obtain loans from Australian banks,” the report said. “Australia enacted new regulations to drive investment into new, instead of existing, stock, while Canada has made onerous changes to its immigrant investor program,”

The report said whilst some locals have acknowledged the benefits of increased investment, highlighting that without it many projects would not be viable, the relatively small size of some of these cities magnifies the impact that external investors, regardless of nationality, can appear to have on a market.

“Consequently, the backlash to increased levels of investment, whether warranted or not, has driven some Chinese investors to invest in the United States.

“The sheer size of the real estate market, coupled with the openness of the investment culture, makes the United States particularly attractive in a global context,” the report found.

Meanwhile the report found Chinese direct investment in US real estate has grown dramatically since 2010.

Chinese buyers spent at least $US93 billion on residential real estate between 2010 and 2015. Spending rose at an annual rate of 20% and provided important demand in many local markets hit by the housing crisis. California accounted for 35% of Chinese home purchases in 2015, followed by Washington state with 8% of sales, and New York at 7%. These markets correlate well with the availability of direct flights from China and established Chinese and Chinese American populations.

In the commercial property sector, Chinese investors acquired at least $US17.1 billion between 2010 and 2015, representing an annual growth rate of 70%. Half of that investment came in 2015 alone.

While 70% of commercial real estate transaction value between 2010 and 2015 was concentrated in the New York, Los Angeles, and San Francisco metro areas, the remaining volume is spread widely throughout the rest of the country.

The report found Chinese capital has also funded projects under construction or planned totalled at least $US15 billion by the end of 2015. These range from multi-billion-dollar mixed-use projects in Los Angeles and the San Francisco Bay Area to smaller-scale developments in secondary markets. The report also estimates that the EB-5 immigration visa program has generated at least $US9.5 billion of Chinese investment capital.

The report said Chinese direct investment across the US commercial and residential real estate excluding new development projects could total at least $US218 billion, from 2016 through 2020.

Margon said this wave of investment is coming from diverse sources in China.

“But that’s really a small piece of the potential investor universe,” he said.

Beyond 2020, Chinese investment in US real estate could accelerate further, thanks to a widening pool of Chinese investors, many of whom have not ventured into US real estate; increasing global appetite by Chinese developers and construction companies; a $US1.6-trillion insurance industry that has become active overseas but invested just a fraction of funds available for real estate projects; and new Chinese investment vehicles such as private equity funds.

Property Review Australia – 18 May 2016

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