Chinese Real Estate Buyers in California

By: Arvin Sahakian

Chinese nationals are quickly becoming the largest percentage of international buyers of U.S. homes. Learn why California is the most popular place for their real estate purchases, what they're buying, and the impact it's having.

From March 2013 to March 2014, Chinese buyers spent $22 billion purchasing homes in the U.S. That was a staggering 72 percent increase over the previous year. Thirty-five percent went to buying homes in California making it the most popular market among Chinese real estate buyers.

We will discuss:

• Why the California real estate market is so attractive to Chinese buyers• The types of real estate they're buying, and the cities where they're buying it• Impact to real estate values

Why Are Chinese Investors Buying in California?

There are several reasons overseas Chinese are buying in California.

First Reason

China's millionaire class is just beginning to emerge. Its members are looking for safe havens in which to invest their money. California real estate is far from China's political and economic uncertainties.

Second Reason

There is no home ownership in China. The Chinese have up to 70-year leases on their homes. No one knows what's going to happen in 70 years, so buying homes outside of China is a smart investment.

Third Reason

The American education system is another driver. Brian Yang who purchased a home in Irvine is waiting until his daughter turns ten in five years before moving his family to the U.S. Yang explains, "Education in America is very good and world class, so the first one is for education, and I think the second one is for the property appreciation."

What Types of Real Estate Are Chinese Investors Buying?

The National Association of Realtors (NAR) reported that the median price

Chinese nationals paid for U.S. homes in 2013-2014 was $523,148. The next

two highest median prices were paid by United Kingdom citizens at $350,000

and Indian nationals at $342,857. Why was the median price paid by Chinese

buyers so much higher than the average for all international buyers? The

answer is the type of real estate they buy.

Chinese buyers prefer coastal regions like California. Of all the California homes sold to foreign buyers in

2013, half were purchased by Chinese nationals. Realtors say that price is no object. Most buyers prefer

mansions or new homes. In the city of Arcadia California, 8,000-square-foot homes are being built next to

modest split-level homes. City officials project that 153 older homes will be torn down this year and

replaced by mansions bought by Chinese nationals.

Chinese nationals emigrating to the U.S. are drawn to suburban single-family homes with yards and garages.

There's a limited supply of these homes in China, and most are only available to the wealthy. Those who

aren't purchasing mansions and single-family homes prefer new condominiums in urban areas.

49% Vacation Home & Residential Rental

39% Primary Res-idence

5% Commercial Res-idence

7% Other

Intended Use of Real Estate By Chinese Buyers

How Much Real Estate Are Chinese Buying?

According to the California Association of Realtors (C.A.R.), thirty-six percent of all international buyers were Chinese. Since buyers are not required to disclose their citizenship or residency status, it's difficult to know exactly how many homes were purchased by Chinese nationals.

However, Allen Ching, President of the San Francisco/Peninsula chapter of the Asian Real Estate Association of America estimates "maybe 20 percent of the deals in San Francisco and the Peninsula are cash overseas buyers. I can only see that increasing.” Two-thirds of those buyers are from China.

The chart below shows China’s percentage of international sales transactions growing within the United States. In 2007, China accounted for 5% of all international buyers in the U.S., whereas is in 2014 China accounted for 16% of all international buyers in the U.S.

2007 2008 2009 2010 2011 2012 2013 20140%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Percentage of International Sales By Chinese Investors

Source: National Association of Realtors

Where Are Chinese Nationals Buying?

A recent NAR survey shows the most popular U.S. cities among Chinese

buyers. Three of the four top cities are in California. New York is one of

the four with 22% of the real estate purchases made by Chinese buyers.

Here are the three California cities making the top four.

Most Popular U.S. Cities Among Chinese Buyers

34% San Francisco

17% Los Angeles13% San Diego

36% Other

Many buyers are drawn to these cities because there are already enclaves of Chinese immigrants. In addition to the cities, here's the data on the types of areas where Chinese prefer to buy.

Type of Areas Chinese Prefer to Buy

46% Suburban

37% Central City & Urban

14% Small Town & Rural

3% Resort

Impacting Home Values

The City of Arcadia is a microcosm of what's happening all over California because of the flood of Chinese money into the real estate market. Owners are putting their homes on the market and asking $2 million to $3 million for 17,000 square foot lots. They're having no trouble finding buyers. The economic boom helped the city build a $20 million high school for performing arts. The local Mercedes-Benz dealership has expanded. One Arcadian's home was valued at $1.2 million, and a real estate developer offered him $1.5 million.

The chart below takes a look at the median sales price of homes in the city of Arcadia California from 2007 to April 2015. The median sales price was $659,000 during January 2007, whereas by the end of April 2015 it was $1,050,000.

2007 2008 2009 2010 2011 2012 2013 2014 42095$600,000

$650,000

$700,000

$750,000

$800,000

$850,000

$900,000

$950,000

$1,000,000

$1,050,000

$1,100,000

$659,000

$707,000

$647,000

$718,000 $682,000

$688,000

$774,000

$901,000

$1,050,000

Median Sales Price of Homes in Arcadia CASource: Zillow Home Value Index

The majority of Chinese purchases are all-cash sales. Many Chinese buyers

attend invitation-only real estate trade shows. Sitting in Shanghai or Beijing,

they see videos of California properties complete with walk-throughs of the

homes and their surrounding neighborhoods. Potential buyers bid on the

homes they're interested in purchasing. Here's how Realtor Michi

Olson of Alain Pinel Realtors described the process: "There's no loan

contingency, no inspection and no appraisal. We just had one in the East Bay

with 53 offers and the property went for $200,000 over the asking price."

Many of the homes remain vacant during most of the year. They're called "ghost houses." Some are purchased as investments while others are bought for future use. Smart buyers are aware the flood of all-cash purchases is driving up real estate prices, so they're buying now instead of waiting for when they're ready to move to the U.S.

What Does All This Mean?

Unless you live or plan on buying real estate in the California coastal regions, you're probably not impacted by all of this. If you're fortunate enough to live in a California coastal regions, your property value is probably increasing a great deal. Better yet if you plan to move away from the area, you'll most likely make a large profit on the sale of your house.

There are a couple downsides to this real estate boom. Higher home values are driving up property taxes for the coastal regions. People wanting to move to the area may not be able to afford the higher prices or can't compete with the cash offers being made by the Chinese investors. Yet, this influx of cash and tax dollars are still a positive impact to California's municipalities, real estate agencies, and businesses in general.