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U.S. real estate gaining Chinese investment

Wednesday, May 18, 2016

Backlash against offshore homebuyers in traditionally favoured Canadian and Australian cities is now touted among the factors encouraging Chinese investors to explore real estate options in the United States. A new report from the U.S. based Asia Society and real estate analysts, Rosen Consulting Group, tracks China’s growing market presence through acquisitions, development, lending and holding a larger share of U.S. government-backed mortgage bonds than any other country, and projects potential for $218 billion of direct Chinese investment in American commercial and residential properties over the next five years.

While Canada remains the predominant foreign investor in the U.S. commercial market, with acquisitions totalling $24.6 billion in 2015, Chinese purchasers significantly outpaced Canadian residential investment last year. Chinese spending in the residential market has increased by approximately 20 per cent in every year since 2010, reaching $28.6 billion in 2015. Canadians were the next most active foreign investors, spending $11.2 billion — a gap attributed both to sales volumes and values.

“Chinese buyers paid substantially more, on average, per home than other international buyers because of their concentration in prime neighbourhoods in California and New York,” the report states. Meanwhile, it describes “vocal opposition” to Chinese buyers elsewhere.

“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,” the report recounts.

The report’s authors suggest this is a symptom of the “relatively small size” of Vancouver, Sydney and Melbourne — where discontent related to the impact of a dramatic influx of outside investment has also been expressed — making the size and “openness of the investment culture” in the U.S. market attractive. “The backlash to increased investment, whether warranted or not, has driven some Chinese investors to invest in the United States,” they hypothesize.

Condominium projects account for the major portion of approximately $15 billion of Chinese funded new development that is now under construction or in the planning stages. “More than 30 of the identified development projects are exclusively residential (save for small, groundfloor-only retail components), while nearly 20 more are mixed-use with significant residential components. Among mixed-use projects, 11 have retail components, while 8 will feature a hotel and 5 will feature office space,” the report tallies.

Chinese acquisitions of in U.S. commercial properties have also picked up steadily in the period since 2010, with $8.5 billion invested last year. Analysts foresee the current economic turbulence in China will create “a short-term speed bump”, although it is expected to be more of a drag on individual purchases of U.S. homes versus larger developers and investment funds that could be looking to move capital outside the country. The latter are tagged as a burgeoning force.

“The volume and breadth of Chinese investment into U.S. real estate is not yet to the level of Canadian investment — which is ubiquitous throughout the U.S. real estate spectrum — but it is more diverse than investment from other leading sources such as Norway and countries in the Middle East,” the report observes. “Furthermore, this broad scope of Chinese investment has come to fruition in the span of just a few years.”

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