The rise of Chinese Investors in the US Real Estate

The emergence of China as a world power is downplayed by a few, while few others welcome it or remain to be wary. Ok, let us brush that side!! But, when it comes to making investments in real estate in the United States, Chinese are fast emerging as the frontrunners. The momentum has only picked up over the past decade or lesser, with billions of dollars pumped into US, a nation where real-estate purchases happen with transparency backed by stronger legislations.

Of the various states, it is California, New York and Washington state that are wooing the Chinese investors. Interestingly, investments aren’t just made on residential properties but even commercial real estate properties have become the cynosure of the eyes of the wealthy Chinese. With many commercial buildings for sale in California and other states, the investments are happening at a brisk pace. To the surprise of many market analysts, the report from the National Association of Realtors stated one–third of the purchases made by the Chinese were in the state of California till March of 2015, followed by Washington state and New York. Looking at the pattern of purchases made, it is evenly distributed across the rural, urban and coastal areas. Chinese are making investments even in the countryside. Amongst the cities, it is Los Angeles and San Francisco that top the list.

The purchase of Waldorf Astoria hotel for a staggering $1.95 billion by Anbang Insurance, a Chinese holding company, is still fresh in our memory and reflects the big-ticket investments made by the Chinese in the commercial real estate in the United States. Greenland, Fosun, and many other Chinese conglomerates are eyeing investments in residential as well as commercial properties.

Why the rush?

Over the decade, more so in the last 5 years, wealthy Chinese are diversifying their investments. An array of factors is making investments in real estate attractive to them. Transparency in U.S real-estate dealings forms the foremost reasons. Besides, the nouveau riche in China is on a lookout for better investment options and portfolio diversification, with the U.S becoming the preferred destination for their investments.

Slow down in China’s economy, volatility and devaluation of its currency, the sudden plunge in Shanghai composite are the other major factors making the Chinese to look for investments outside the country.

Continuing momentum

China is a new entrant into the U.S real estate market. Back in 2010, the investments made by Chinese were a pittance. Today, their investment stands beyond $300 billion and is poised to grow bigger. Statistically speaking, they invested $ 17 billion between 2010 and 2015 in the American commercial real estate.

This trend in investments from China seems not to wither in the days to come, despite the capital outflow restrictions in China. Asia Society, in its report, states that cap on capital outflows from China will only temporarily slow the flow of money and won’t impact the growing investments made in the US.

Sought after commercial properties

Seeing it as a safe investment option, Mainland China investors are on a purchasing spree of office buildings, hotels, industrial, retail, developable land, warehouses and apartment spaces. Thanks to 2008 financial crisis and the fall in prices, investing on real-estate properties has turned to become a gold mine for the wealthy Chinese. So why this scramble even at a time when economic uncertainty is looming large on western nations, particularly the United States? Investors believe that investing in mature markets like the US is the best bet for them in terms of returns. For instance, leasing out an office building to banks, financial institutions or MNCs assures strong returns.

What this trend means to American real-estate sector?

In the context of residential real estate, the home prices will further go up, becoming a boon for the owners. However, investors intending to make purchases have to shell more amount of money. The rise in housing cost will become a sore point, with blame falling squarely on the Chinese investors.

On the flip, investments in commercial real estate space will create more jobs in the construction sector. Also, office, retail, hotel property development means creation of permanent jobs. To put it in numbers, 200,000 jobs have been created in the past six years from the real-estate investments made by the Chinese. Investments and job creation is bound to grow in Commercial real estate alone, with the rise in commercial investments growing by 70%.