Chinese investors seem to have a liking for US real estate. According to Bob O’Brien, a partner at Deloitte, the Chinese have increased their investment in the US by seven times in the last five years. A significant portion of this investment has gone into real estate. 2013’s fourth quarter was especially good in terms of investments from China. That continued throughout 2014 and now we are seeing the same trend in 2015.
The biggest Chinese investors are state owned companies, real estate developers, sovereign wealth funds, investment management companies and even wealthy families and individuals. They used to buy most of their real estate in Los Angeles, Chicago or New York but that trend has recently changed. According to O’Brien, most of the Chinese investments have gone into big development projects and prime properties. It is also good news for the US, because this infusion of money has been a good source of funds for the industry which is still struggling in many places.
The Chinese real estate market is struggling
But why are the Chinese investing in US real estate. For one, the Chinese real estate market is cooling down. The Economist has reported that home prices in China fell by nearly 6% in 2014, which means the returns on real estate are not commensurate with investments in China. Mega real estate companies are also showing signs of distress. One of them, the Shenzen-based Kaisa has defaulted on its loans, sending the Chinese real estate market into a tizzy. While there are no indications yet that the Chinese real estate market might crash, it is certainly in the doldrums for now.
The Chinese government is not blind to these problems. It has started promoting outbound investments and real estate provides comparatively stable and modest returns. Analysts are saying that the Chinese might invest around $50 billion into the US real estate market in the next few years.
How do Chinese investments in US real estate affect US citizens?
This is not good news for US citizens who are looking for properties to buy, because the Chinese have upped the ante by boosting real estate prices. Purchasing properties in major cities like New York, Chicago or Los Angeles will be more difficult now, because sellers know that if they wait, they might just snag a Chinese buyer. At the same time, it is good news for sellers because they can get more value for their properties. It will not only help them pay off their mortgages, but also leave them some money.