Picky Chinese invest smartly in overseas residential units
Zhou Yilan, 46, owner of a private firm in Hangzhou, Zhejiang province, heaved a sigh of relief when her lawyer called on Jan 8 to say the paperwork related to her purchase of a house in Los Angeles has been completed finally.
“I can rest assured and enjoy the Spring Festival now,” said Zhou, speaking to China Daily shortly thereafter.
She spent more than six months to formalize the LA property deal. “It was one of the biggest challenges I have ever experienced.”
Zhou is among the many Chinese investors who are buying overseas properties to own a more diversified portfolio.
According to Juwai.com, an online service offering information on overseas properties to Chinese mainland buyers, Chinese real estate investment outside China has grown from $5 billion in 2010 to $52 billion in 2014, and is set to reach $220 billion by 2020.
Reasons abound. As China continues to open up its capital markets, Chinese residents can convert their renminbi into other currencies like the US dollar in greater amounts, and pay for overseas properties in foreign currencies.
Also, Chinese investors are better-traveled now than ever before and, hence, exposed to more investment opportunities.
“On the one hand, US properties now are more expensive than 12 months ago, when I first decided to diversify my investments. On the other, if I didn’t buy as soon as possible, the current value ofmy wealth wouldn’t have been retained,” said Zhou.
So, she met several visiting overseas property agents during their roadshows in China. In late summer of 2015, Zhou finally zeroed in on a secondhand property, a three-bedroom house in suburban Los Angeles. It cost her $890,000.
Officials at global realty firms said Chinese buyers’ interest in US properties has been increasing as they think the value of US houses will appreciate.
Aaron Kirman, president of the international estates division of realty agency John Aaroe Group, said in a recent interview that inquiries from Chinese buyers for his highestpriced properties rose 45 percent year-on-year in the last quarter of 2015.
“I currently have more than a dozen properties priced from nearly $15 million to $135 million. Every one of them is getting much greater interest from Chinese buyers,” said Kirman.
The US is one of the top overseas destinations of Chinese students and tourists. Owning a US property helps, especially if a Chinese parentcum-investor wishes to diversify his/her portfolio and buck the trend of yuan depreciation.
However, for property market professionals in the US, doing business with Chinese buyers entails challenges.
Scott McFarlane, a property agent in Houston, said Chinese investors are getting increasingly realty-savvy and have a clear idea of the kind of property they need.
“In the past, (Chinese) buyers would decide to buy a property just by looking at PowerPoint. Now, they would like to do on-site research, talk to lawyers, property inspectors and agents, and visit the properties time after time before they sign the deal,” said McFarlane.
Location of a property is key: Proximity to a prestigious school or university is a big factor. For instance, Zhou Yilan said she settled for the LA house because it is just a 15-minute drive from a local high school that her daughter will enroll into next year.
She also likes the neighborhood of lush woods, and tranquil, peaceful surroundings, a contrast to her apartment’s location in her hometown. In Chinese cities, people prefer downtown apartments. In the US, people prefer silent neighborhood, she said.
Other factors include price and size.
Typically, Chinese buyers prefer spacious properties, with at least three bedrooms, because friends and families often visit.
Since only a few buyers are able to obtain mortgage from local banks, others must make full payment in cash.
So, a lot of Chinese buyers prefer US properties priced between $500,000 and $2 million, not like in China where they tend to buy the most spacious and expensive ones they can afford, betting on value growth.
Analysts said Chinese buyers increasingly survey the investment destinations and study each property.
Henry Chin, CBRE’s head of research, Asia-Pacific, said Chinese investors now realize the property market is quite different from the stock market, and that even two properties in the same neighborhood may have different potential for appreciation in value.
“While the stock market’s performance of one country may immediately affect that of another, the same can’t be said of the property markets. So, it requires a lot of research for investors to decide,” said Chin.
CBRE’s research showed most Chinese buyers of US properties are not driven by the potential for value appreciation or rental returns. Instead, they buy properties forownuse or for theirUS university-bound children.
“For this reason, traditional popular destinations, including Los Angeles, San Francisco, NewYork andWashington, are still the hottest destinations. For people seeking rich yields from property investments, sub-premier locations can be a good option,” said Chin.
Most Chinese investors prefer new properties to used homes even though used homes in the US do not need much refurbishment. The key criterion is, homes must be decorated, and in a ready-to-move-in condition.
Another striking feature is Chinese buyers tend to buy properties that are not distant from their families’ or friends’ homes. Sometimes, a group of buyers visits newly developed properties together and buys adjacent units, to become neighbors in the future.
A man consults with an employee of Jimu.com, an Internet-based investment tool, at a fair in Beijing.
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